NEW YORK COMMUNITY BANCORP, INC.
Solid Earnings. Superior Assets. Consistent Capital Strength.
2012 ANNUAL REPORT
New York Community Bancorp
is the holding company for New York
Community Bank, a thrift, with 240
branches in Metro New York, New Jersey,
Ohio, Florida, and Arizona—and New York
Commercial Bank, with 35 branches in
Metro New York.
With assets of $44.1 billion at December
31, 2012, we are the 20th largest bank
holding company in the nation and, with
deposits of $24.9 billion, its 23rd largest
depository.
We also are the leading producer of
multi-family loans on rent-regulated
apartment buildings in New York City—
a market we’ve been lending in for more
than 40 years. In 2012, multi-family loans
represented $5.8 billion of the $9.0 billion
of loans we originated for investment, and
$18.6 billion of the $27.3 billion of loans in our
held-for-investment portfolio at year-end.
We also rank 13th among the top aggre-
gators of one-to-four family mortgage
loans in the nation, with $10.9 billion of
such loans produced for sale in 2012. In
contrast to our multi-family lending niche
which, again, is primarily New York City,
our market for one-to-four family mort-
gage loans is nationwide.
Largely reflecting the benefits of this
two-pronged approach to lending, we
also rank among the top performers in our
industry. In 2012, our earnings rose to $501.1
million, generating a 1.28% return on aver-
age tangible assets and a 16.80% return
on average tangible stockholders’ equity.
The quality of the loans we produce was
another significant factor in our 2012 per-
formance, much as it has been throughout
our public life. Net charge-offs represented
0.13% of average loans, well below the
1.24% industry average; similarly, non-
performing non-covered loans represented
a well below-average 0.96% of total non-
covered loans at December 31st.
We also are distinguished by the
strength of our capital measures, and
by the consistency of the dividends we
pay to those who own our shares. At
December 31, 2012, tangible stockholders’
equity represented 7.65% of tangible
assets, even after the payment of our 35th
consecutive quarterly cash dividend of
$0.25 per share.
To learn more about our performance
in 2012, and the strategies that contributed
to our performance, we invite you to con-
tinue reading our 2012 Annual Report.
ABOUT OUR COVER: Photos from Our Footprint
TOP: The colorful skyline of Miami, Florida
LEFT: Phoenix, Arizona, where commerce and cacti abound
RIGHT: Cleveland, Ohio, looking northwest towards Lake Erie
BOTTOM: Midtown Manhattan, looking west toward New Jersey
CONTENTS
2 Letter to Shareholders
8 More Than a Name...A Commitment: The “C” in NYCB
10 Balance Sheet Highlights 11 Income Statement Highlights 12 Performance Measures
13 Reconciliation of GAAP and Non-GAAP Capital Measures
14 Corporate Directory 16 Shareholder Reference
NEW YORK
COMMUNITY
BANCORP…
ONE OF THE TOP 25
BANK HOLDING
COMPANIES IN THE
UNITED STATES
ASSETS
$44.1 billion
Our assets rose $2.1 billion in 2012,
to $44.1 billion, primarily reflecting
the growth of our held-for-
investment loan portfolio.
MULTI-FAMILY LOANS
$18.6 billion
Loans held for investment rose
$1.7 billion year-over-year, to
$27.3 billion, including a $1.2 billion
increase in multi-family loans to
$18.6 billion.
ONE-TO-FOUR FAMILY LOANS
$10.9 billion
In 2012, we produced $10.9 billion
of one-to-four family loans for
sale, exceeding the year-earlier
volume by $3.7 billion, or 52.3%.
DEPOSITS
$24.9 billion
Reflecting both organic growth
and deposits assumed in an
earnings-accretive transaction,
deposits rose $2.6 billion year-
over-year to $24.9 billion.
TOTAL RETURN ON INVESTMENT
3,069%
For investors who have held
their shares since our conversion to
stock form, the total return
on investment was 3,069% at
December 31, 2012.
F E L L O W S H A R E H O L D E R S :
Recently, we came across an article that advises investors what to look for
in a letter to shareholders such as this. The author—a director of research
and portfolio manager at the time the article was written—states that
in addition to providing information about the company’s performance
and prospects, “a good shareholder letter describes how the company’s
strategic planning process anticipates and responds to the ever-changing
economic, industry, or competitive environment.”
The article also suggests that shareholders look
for consistency in management’s communications
from one year to another, and that they consider
how the company’s performance measures up to
those of its peers.
While these were just a few of the author’s
observations, they were, in our opinion, very much
on the mark. As we approach our 20th anniversary
as a public company, we welcome this opportunity
to discuss not only our 2012 performance but, also,
how we compare with our industry peers; the time-
tested strategies we adhere to; and the environmental
backdrop for the actions we take.
OUR 2012 PERFORMANCE:
SOLID EARNINGS, SUPERIOR ASSETS,
CONSISTENT CAPITAL STRENGTH
In 2012, our earnings rose $21.1 million year-
over-year to $501.1 million, providing a 1.28%
return on average tangible assets—consistent with
the year-earlier measure—and a 16.80% return on
average tangible stockholders’ equity—up 28 basis
points. Diluted earnings per share rose to $1.13 in
2012 from $1.09 in 2011, and our tangible stock-
holders’ equity rose to $3.2 billion at year-end. The
increase in earnings was primarily due to our two-
pronged approach to lending: We originate multi-
family loans for our portfolio, primarily in New York
City; and originate one-to-four family loans through-
out the U.S., primarily for sale.
Our assets also rose in 2012, to $44.1 billion,
and we also increased our deposit market share in
most of the markets we serve. The increase in deposit
market share was due to both organic growth, as
we selectively stepped up our pricing, and to the
assumption of deposits in an earnings-accretive
transaction in June. As a result, total deposits rose
$2.6 billion year-over-year, to $24.9 billion, including
a $1.7 billion increase in CDs.
The growth of our assets was largely due to
robust loan production. Of the $19.9 billion of loans
we produced in 2012, $9.0 billion were for our port-
folio (referred to as “loans held for investment”),
including $8.2 billion of high-quality multi-family
and commercial real estate loans. Loans held for
investment rose $1.7 billion year-over-year, to
$27.3 billion, with multi-family loans accounting for
$1.2 billion of the increase and commercial real estate
loans accounting for most of the rest. The growth
of the multi-family loan portfolio was particularly
compelling, given that our largest loan relationship
(two loans to a single borrower totaling $545.5 mil-
lion) prepaid in the fourth quarter of the year.
The remaining $10.9 billion of loans were
produced by our mortgage banking operation, and
consisted entirely of one-to-four family mortgage
loans for sale. In contrast to multi-family loans—for
40+ years, our primary line of business—we’ve been
producing one-to-four family mortgage loans for
sale since the first quarter of 2010. This business line
was acquired in late 2009 in connection with our
2
KEY PROFITABILITY AND
ASSET QUALITY MEASURES
SNL U.S. Bank and Thrift Index
NYCB
Return on
Average Tangible
Assets
1.28%(a)
0.81%
Return on
Average Tangible
Stockholders’ Equity
16.80%(a)
12.39%
2012
2012
Efficiency
Ratio
66.10%
40.75%
Net Charge-Offs/
Average Loans
1.24%
2012
0.13%
2012
Non-Performing
Non-Covered Assets/
Total Non-Covered Assets
1.09%
Non-Performing
Non-Covered Loans/
Total Non-Covered Loans
2.22%
0.71%
0.96%
12/31/12
12/31/12
(a)
Tangible stockholders’ equity is a non-GAAP capital measure.
Please see the discussion and reconciliations of our GAAP and
non-GAAP capital measures on page 13.
FDIC-assisted AmTrust Bank acquisition, and is led
by many of the same seasoned residential mortgage
professionals who established it several years before.
The merits of having added this business line to our
traditional business model are reflected in our earn-
ings, as further discussed below.
While our net interest income declined last
year, as market interest rates fell to record lows and
the fed funds rate held steady, the decrease was
more than offset by an increase in income from the
origination of one-to-four family mortgage loans for
sale. As residential mortgage interest rates declined,
refinancing activity surged and new home purchases
increased. As a result, mortgage banking income
rose $98.0 million year-over-year, to $178.6 million,
exceeding the impact of a $40.4 million reduction in
net interest income to $1.2 billion.
The decline in net interest income was limited
by the contribution of prepayment penalty income,
which rose to a record $120.4 million as the drop in
market interest rates prompted an increase in refi-
nancing activity in our multi-family niche. In addition,
prepayment penalty income added 33 basis points to
our net interest margin, limiting the adverse impact
of the decline in average asset yields. In a year when
most bank margins were subjected to significant
downward pressure, our margin fell 25 basis points
to 3.21%.
In the interest of supporting our margin and
enhancing our interest rate risk position, we reposi-
tioned $6.0 billion of wholesale borrowings between
mid-December 2012 and mid-January 2013. The
result, which will first be reflected in this year’s first
quarter earnings, was a 117-basis point decline in
the weighted average cost of the funds we reposi-
tioned, and the extension of their weighted average
call and maturity dates by approximately four years.
Another 2012 highlight was the quality of our
assets—a hallmark of our performance throughout
our public life. Our loss experience was far less than
that of most other banks in the peak years of the
Great Recession, and this certainly continued to be
the case as the economy improved, albeit sluggishly,
in 2012.
For example, while net charge-offs represented
0.35% of average loans in 2011, they represented
0.13% of average loans in 2012. Similarly, our non-
performing non-covered loans represented 0.96%
of total non-covered loans at the end of December,
reflecting a solid one-year improvement and a 218-
basis point improvement from the peak measure
recorded at March 31, 2010.
2012 Annual Report
3
LOANS OUTSTANDING
(in millions)
Loans Held for Investment:
Multi-Family
Commercial Real Estate
All Other Loans Held for Investment
Loans Held for Sale
Covered Loans
TOTAL LOANS OUTSTANDING:
$293
$67
$429
$789
$4,298
$1,207
$1,467
$3,753
$1,037
$1,244
$5,016
$1,654
$4,987
$5,438
$6,856
$3,284
$1,204
$1,243
$7,437
$2,482
$3,826
$1,915
$4,551
$14,055
$15,726
$16,736
$16,802
$17,433
$18,605
$20,363
$22,192
$28,393
$29,212
$30,323
$31,773
12/31/93
12/31/07
12/31/08
12/31/09
12/31/10
12/31/11
12/31/12
The quality of our assets is even more apparent
when our measures of asset quality are compared
to those of our peers. In 2012, net charge-offs repre-
sented 1.24% of average loans for the SNL U.S. Bank
& Thrift Index; non-performing non-covered loans
represented 2.22% of total non-covered loans for the
Index at December 31st.
Reflecting our earnings and capital strength,
we maintained our commitment to enhancing the
value of your investment with the payment of an
annual dividend of $1.00 per share. Our dividends
continue to represent a significant portion of our total
return on investment which, at March 31, 2013, was
3,436% for our charter shareholders and 25.2% for
those who purchased our shares at the start of 2012.
A CONSISTENT BUSINESS MODEL
The strategies we pursue today are consistent
with the ones we’ve been pursuing for decades—
with the exception of the addition of producing and
selling one-to-four family loans. While to some,
our long-term consistency may seem somewhat
unexciting, to others, that same consistency is a
highly investable trait. We would take the latter view,
as would be expected; we believe that our consis-
tency has served the Company well.
While it’s true that we’ve grown in the past 20
years—from $1.1 billion to $44.1 billion in assets—
that was our intention in 1993 and remains our
intention today. We realize that we’ve said this before,
but we think it bears repeating: The motivation for
becoming a public company was our belief in our
business model and its ability to generate value for
those who would own our shares. We also believed
that the value we’d create for our own investors
would attract other banks to merge with us and, in
turn, create greater value for their investors as well
as our own. Thus, in 1993, our business model had
four key components: the origination of multi-family
loans, the maintenance of quality assets, an efficient
operation, and acquisition-driven growth. These
same components continue to be essential to our
performance, as described in more detail below.
Multi-Family Lending: The Key to Our
Profitability, Asset Quality, and Efficiency
Multi-family lending has long been, and contin-
ues to be, our primary business, and rent-regulated
apartment buildings in New York City have long
been, and continue to be, our primary lending niche.
While the market for multi-family loans has attracted
numerous lenders over the decades, we alone have
been constant in our commitment, lending money
to deserving borrowers in both good times and bad.
Our loyalty has been rewarded with a portfolio that
contributes meaningfully to our profitability, asset
quality, and efficient operation—and also to our
overall success as a public company. Let us explain:
First, most of the multi-family loans we produce
are secured by rent-regulated apartment buildings,
which tend to retain their tenants even when the
economy declines. For example, while New York City’s
unemployment rate reached 9.50% in 2011, its over-
all apartment vacancy rate was a very low 3.12%.
4
Next, the multi-family loans we make are gen-
erally based on the building’s current cash flows—
in other words, the actual rents that the borrower
receives. In addition, the multi-family loans we
produce are conservative in nature, featuring loan-
to-value ratios that rarely exceed 75% at the time the
loans are made. When LTV ratios are low at the time
of origination, they tend to serve as a buffer should
the property lose some of its value in a downward
cycle turn. These are the primary reasons we’ve expe-
rienced minimal losses over the course of decades:
conservative underwriting and the very nature of
the buildings that collateralize our loans.
The structure of our multi-family loans is
another important feature—typically, our loans are
made for terms of ten or twelve years. Nonetheless,
the majority of our multi-family loans refinance
within three to five years of origination, generating
income in the form of prepayment penalties.
In addition, multi-family loans contribute sub-
stantially to the efficiency of our operation—they
are not all that costly to service or originate. All of
our loans are brought to us by seasoned mortgage
brokers, and any fees they receive are paid by our
borrowers. In addition, our lending officers are never
paid by the loan—therefore, quantity is not an
incentive. Our lending officers share our belief that
quality rules.
The same can be said of our commercial real
estate credits, which also lend themselves to a high
level of asset quality and efficiency. We underwrite
our commercial real estate loans in much the same
way we underwrite our multi-family credits: by
looking at the current cash flows produced, the
expertise of the property owner, and the upside
potential of the property. We fund our commercial
real estate loans in much the same way that we fund
our multi-family credits—but typically at even more
conservative LTV and debt service coverage ratios.
Also, the structure of our commercial real estate
loans mirrors the structure of the loans we make on
multi-family buildings, and require the payment of
the same penalties when they prepay.
Growth Through Acquisitions
Since November 2000, we’ve engaged in 11
earnings-accretive transactions—six savings banks,
three commercial banks, one branch network, and,
in June 2012, the assumption of deposits from Aurora
Bank FSB. The Aurora transaction accounted for
$1.3 billion of our deposits at the end of December;
it also contributed to a decline in our funding costs.
While each of our transactions has had certain
unique features, certain of their benefits have been
very much the same. Each expanded our customer
base, as well as our deposits; and each enhanced our
capital, as well as our revenue stream. While some
provided assets that were consistent with our business
model, others added assets that we securitized or
sold. Some provided business lines we chose to dis-
continue, while others brought new businesses we
wisely chose to keep. Some were traditional mergers,
while others were FDIC-assisted. Some were in our
market, and others well beyond. Regardless of loca-
tion, the integrations have worked.
DEPOSITS
(in millions)
CDs
NOW and Money Market Accounts
Savings Accounts
Demand Deposits
$17
$347
103
$360
$827
TOTA L D EPOSITS:
$1,870
$1,933
$2,242
$3,788
$7,706
$9,054
$3,886
$3,954
$8,236
$8,757
$7,835
$7,373
$2,759
$4,214
$8,784
$9,121
$1,423
$2,518
$2,457
$6,913
$1,375
$2,632
$6,451
$3,819
$6,797
$13,311
$14,623
$22,418
$21,890
$22,326
$24,878
12/31/93
12/31/07
12/31/08
12/31/09
12/31/10
12/31/11
12/31/12
2012 Annual Report
2012 Annual Report
2012 Annual Report
5
Our interest in growing larger still is certainly
no secret; mention New York Community Bancorp
and the speculation begins. Questions such as “who?”
and “when?” are, frankly, questions without answers.
When the opportunity is right—and that depends
on multiple factors—we will do our best to take
advantage, while exercising the same level of prudence
we have exercised in the past.
OUR ECONOMIC, REGULATORY, AND
COMPETITIVE ENVIRONMENT
The actions we took in 2012 were consistent with
our business model, which was designed—several
decades ago—to sustain us in times of economic
adversity. Before we became a publicly traded bank,
we witnessed the devastation caused by the “S&L
Crisis,” which resulted in the failure of 747 institu-
tions. More recently, we witnessed the damage done
by the Great Recession, as far less risk-averse lenders
made too many loans that were based on inflated
prices, in too many cases to borrowers who could not
possibly repay. As the real estate bubble burst, 325
banks failed throughout the nation—while others
were forced to sell at a fraction of their previous worth.
During tough economic times, we have been
distinguished by our performance—a fact that we
attribute to the strategies we’ve pursued: We origi-
nate most of our held-for-investment loans in a niche
that is less likely to generate losses, and we structure
our loans to mitigate the impact of interest rate
volatility. We’ve diversified our lending mix and our
income stream through our mortgage banking
business and, at the same time, have expanded our
marketplace to include all 50 states. We’ve priced
our deposits prudently and reduced our higher-cost
funding. And we’ve continued to be prudent in our
pursuit of acquisition-driven growth.
We’ve also witnessed the establishment of more
stringent bank regulations—the FDIC Improvement
Act in the wake of the S&L Crisis, and the Dodd-
Frank Wall Street Reform and Consumer Protection
Act in 2010. Much as our actions have been informed
by our aversion to economic risk factors, so too have
our actions been informed by the drive to adapt and
comply when regulations change.
Accordingly, in 2012, we devoted substantial
resources to complying with the Dodd-Frank regula-
tions, some of which will not take effect until later
in 2013. As a result of the steps we took last year
to enhance our capital planning and stress testing
framework, we believe we are an even stronger and
sounder organization today than we were before. We
have always considered ourselves to be risk-averse
in our strategies and our decisions. But today, it
would not be wrong to say that we are closer to risk-
obsessed. Such mindset has become a necessity for
all banks and thrifts in the wake of the Great Recession
and, although it has proved somewhat costly, it is
bound to result in our industry regaining credibility.
At the same time, the demands of complying
with Dodd-Frank are likely to result in more banks
consolidating, thus creating new opportunities for
acquisition-driven growth. We firmly believe that
the Company will benefit from the trend towards
TOTAL RETURN ON INVESTMENT
CAGR SINCE OUR IPO =
28.4%
As a result of nine stock splits from
September 30,1994 to February 17, 2004,
our charter shareholders have 2,700 shares
of NYCB stock for every 100 shares
originally purchased.
SNL U.S. Bank and Thrift Index
NYCB(a)
(a) Bloomberg
3,843%
2,885%
2,754%
2,670%
2,059%
3,436%
3,069%
444%
213%
209%
245%
168%
260%
294%
11/23/93
12/31/07
12/31/08
12/31/09
12/31/10
12/31/11
12/31/12
3/31/13
6
consolidation—and that our shareholders will also
benefit as we engage in transactions that are accretive
to both earnings and capital.
IN CLOSING
As we approach the 20th anniversary of our
conversion to stock form, it should be reassuring
to realize that we haven’t much changed our ways,
despite our significant growth. We continue to value
quality in our assets and our earnings, and the
strength of our capital position has been consistently
maintained. We’ve continued to run more efficiently
than most of our peers, even while running eight
banking divisions. We’ve grown through acqui-
sitions, but have passed on far more than we’ve
actually done. We’ve been flexible when, in doing
so, we’ve enhanced our assets and our earnings—
but only after conducting extensive due diligence
to ensure that the risks were limited.
For supporting that consistency, and for their
expertise and insight, we would like to thank our
fellow Directors, as well as the talented and dedi-
cated members of our management team. We also
would like to thank our officers and employees for
their hard work and commitment. Together we’ve
built a company that exemplifies what, we believe,
all public banks should be: a source of safety and
soundness…a producer of quality assets…a provider
of financial services that meet its customers’ needs…
a good corporate neighbor—i.e., one that supports
its communities by sharing its resources—and an
investment that rewards its shareholders by enhanc-
ing the value of their shares.
As always, we thank you for your confidence,
as well as your investment.
With all good wishes,
Dominick Ciampa
Chairman of the Board
Joseph R. Ficalora
President, Chief Executive
Officer, and Director
Robert Wann
Senior Executive
Vice President,
Chief Operating Officer,
and Director
Dominick Ciampa
Chairman
Thomas R. Cangemi
Senior Executive
Vice President and
Chief Financial Officer
Joseph R. Ficalora
President and Chief Executive Officer
April 9, 2013
James J. Carpenter
Senior Executive
Vice President and
Chief Lending Officer
M O R E T H A N A N A M E . . . A C O M M I T M E N T
The “C” in NYCB
Of all the actions we took last year, perhaps the most gratifying was
changing our trading symbol on the New York Stock Exchange. On
November 13, 2012, we returned the “C” to its rightful place—between
the “NY” for New York and the “B” for Bancorp—to represent the most
meaningful part of our name: New York Community Bancorp, Inc.
The decision to make this change was anything
but idle. In fact, it was part of an ongoing campaign
to unify our brand. While it’s true that we operate
multiple banks and do so through several divisions,
we are one organization—and we take pride in remain-
ing, despite our size, at heart, a community bank.
Reinstating the “C” for Community in 2012 was
particularly fitting: Together with our Foundations,
we provided more than $5.8 million in grants and
donations over the course of the year.
“Together we’ve built a company that exemplifies
what, we believe, all public banks should be: a
source of safety and soundness…a producer of
quality assets…a provider of financial services
that meet its customers’ needs…a good corporate
neighbor—i.e., one that supports its communities
by sharing its resources—and an investment that
rewards its shareholders by enhancing the value
of their shares.”
Among those receiving our financial support
was the Thomas Hartman Foundation for Parkinson’s
Research, which succeeded in fulfilling its mission—
the establishment of a Center for Parkinson’s Research
at Long Island’s Stony Brook University. Another
example: Providence House, a shelter for children
and infants in Cleveland that has been recognized
by the state of Ohio as a model crisis nursery.
Yet another project that received our support was
the first off-island exhibit on the history of Staten
Island—presented in Manhattan, at the Museum
of the City of New York. The exhibit, “From Farm
to City,” traced the evolution of Staten Island from
1661 through the present, and was open to the public
from September 2012 through January 2013. We also
take particular pride in funding a unique treatment
program on Long Island for returning veterans and
their families—a collaborative effort between the
North Shore-LIJ Health System and the U.S. Depart-
ment of Veterans Affairs.
Our interest in children and families is also
indicated by our support of organizations like Junior
Achievement, various Boys & Girls Clubs, schools
for special-needs children, and public libraries. In
Arizona, for example, we are long-time contributors
to the Boys & Girls Clubs of the East Valley, which
serve over 40,000 children every year. In New Jersey,
we funded the installation of modified playground
equipment at a school for multiply-handicapped
children. And in Florida, we contributed to Palm
Beach County’s Parent-Child Center, a facility that
works with families to enhance their behavioral skills.
We also donated volunteer hours as members
of various non-profit boards…as mentors to scores
of students…by walking and cycling to raise needed
funds—and even by shaving our heads! We served
meals to the homeless…built two families’ homes…
sponsored sporting events and a free movie series.
We taught classes on financial literacy and prevent-
ing identity theft. We also sponsored special events
like “Walnut Wednesday” in downtown Cleveland,
the “Sounds of the City” outdoor concert series in
Newark, and the Hong Kong Dragon Boat races
in Queens.
And then, of course, was Hurricane Sandy.
While the “storm of the century” had little effect
on the Company directly, many of our customers
and employees were directly impacted by its wrath.
Whether or not we’d lend a hand was, frankly, never
8
NYCB Cares: With the help of our customers and employees, we raised $120,000 for victims of Hurricane Sandy through our NYCB
Cares and Family Helping Family campaigns.
Hong Kong Dragon Boat Festival: More than an event—an institution—the annual Hong Kong Dragon Boat Festival in Queens,
New York, attracts 2,500 competitors from the U.S. and Canada and an even more impressive number of onlookers—60,000—over
two days. Our team was one of over 170 to compete in 2012.
Oyster Festival: A weekend of fun, food, and festivities for the whole family, the annual Oyster Festival in Oyster Bay, Long Island,
benefits more than 20 local non-profit organizations and attracts more than 200,000 people every year. In 2012, we sponsored one of
the event’s most popular features—the Food Court—and welcomed visitors to our information tent.
Habitat for Humanity: We don’t just lend people money to buy homes—we also help people build them, as volunteers for Habitat for
Humanity in Cleveland, Ohio and Long Island, New York.
a question; within hours of Sandy’s departure, we had
launched an NYCB Cares campaign. Among the
organizations whose efforts to help the victims we
gladly supported: The Salvation Army’s Greater
New York Division, which provided food, clothing,
and shelter to thousands…All Hands Volunteers,
who got right to work on Staten Island and Long
Island, treating homes for mold…The Rockaway
Development & Revitali za tion Corporation, which
provided grants to cover the costs of needed repairs
to local businesses so they could reopen…the Food
Bank of Monmouth and Ocean Counties, which
provided sustenance to hundreds of hard-hit fami-
lies in New Jersey…and Rebuilding Together Long
Island, whose volunteers provided sweat equity to
help their neighbors rebuild their homes.
We also take particular pride in the dedication
of our own employees to helping those of their
colleagues whose homes were damaged or destroyed
in the storm. To the question our employees were
quick to ask—How can we help our colleagues?—
the answer was the creation of “Family Helping
Family.” To help their co-workers as they began the
process of rebuilding, employees from all five states
we serve donated scores of all-purpose gift cards,
which were used to purchase basic necessities such
as food and clothing, or to hire electricians and car-
penters to make essential repairs.
We frankly could write an entire report on our
community support and involvement, but we’ve
actually taken a better approach to keeping you, and
the public, informed. On April 8, 2013, in connection
with the launch of our newly designed and user-
friendlier website, we also launched a new feature,
“Our Community.” In addition to linking those who
visit this site to the websites of our Foundations, the
“Our Community” section features stories and news
about events taking place throughout the states com-
prising our footprint, and about the many ways we
fulfill our commitment to the communities we serve.
We hope you’ll join us in taking pride as we
continue to convey that commitment, and emphasize
that the “C” in our name stands for “Community.”
2012 Annual Report
2012 Annual Report
9
December 31,
2012
2011
2010
$ 44,145,100
$ 42,024,302
$ 41,190,689
$ 18,605,185
7,436,950
397,288
203,434
$ 17,432,665
6,855,888
445,387
127,361
$ 16,801,868
5,438,270
569,193
170,392
26,642,857
24,861,301
22,979,723
591,727
49,880
641,607
601,610
69,907
671,517
642,213
85,558
727,771
27,284,464
25,532,818
23,707,494
1,204,370
3,284,061
1,036,918
3,753,031
1,207,077
4,297,869
$ 31,772,895
$ 30,322,767
$ 29,212,440
$
140,948
51,311
$
137,290
33,323
$
158,942
11,903
$
429,266
4,484,262
$
724,662
3,815,854
$
652,956
4,135,935
$ 4,913,528
$ 4,540,516
$ 4,788,891
$ 8,783,795
4,213,972
9,120,914
2,758,840
$ 8,757,198
3,953,859
7,373,263
2,241,334
$ 8,235,825
3,885,785
7,835,161
1,933,557
$ 24,877,521
$ 22,325,654
$ 21,890,328
$ 13,067,974
362,217
$ 13,439,193
521,220
$ 12,500,659
1,035,457
$ 13,430,191
$ 13,960,413
$ 13,536,116
$ 5,656,264
$ 5,565,704
$ 5,526,220
Balance Sheet Highlights (unaudited)
(dollars in thousands)
BALANCE SHEET SUMMARY:
Total assets
Non-covered mortgage loans held for investment:
Multi-family
Commercial real estate
Acquisition, development, and construction
One-to-four family
Total non-covered mortgage loans held for investment
Other loans held for investment:
Commercial and industrial
Other
Total other loans held for investment
Total non-covered loans held for investment
Loans held for sale
Covered loans
Total loans
Allowance for losses on non-covered loans
Allowance for losses on covered loans
Securities:
Available for sale
Held to maturity
Total securities
Deposits:
NOW and money market accounts
Savings accounts
Certificates of deposit
Non-interest-bearing accounts
Total deposits
Borrowed funds:
Wholesale borrowings
All other borrowed funds
Total borrowed funds
Stockholders’ equity
10
Income Statement Highlights (unaudited)
(dollars in thousands, except per share data)
EARNINGS SUMMARY:
Interest income:
Mortgage and other loans
Securities and money market investments
Total interest income
Interest expense:
NOW and money market accounts
Savings accounts
Certificates of deposit
Borrowed funds
Total interest expense
Net interest income
Non-interest income:
Mortgage banking income
Fee income
BOLI income
Other income
All other non-interest income
Total non-interest income
Provision for losses on non-covered loans
Provision for losses on covered loans
Non-interest expense:
Operating expenses
Amortization of core deposit intangibles
Total non-interest expense
Income tax expense
Net income
Basic earnings per share
Diluted earnings per share
For the Twelve Months
Ended December 31,
2012
2011
2010
$ 1,597,504
193,597
$ 1,638,651
228,013
$ 1,669,871
243,923
1,791,101
1,866,664
1,913,794
36,609
13,677
93,880
486,914
631,080
39,285
15,488
102,400
509,070
666,243
56,991
20,833
138,716
517,291
733,831
1,160,021
1,200,421
1,179,963
178,643
38,348
30,502
35,742
14,118
297,353
45,000
17,988
593,833
19,644
613,477
279,803
80,674
44,874
28,384
35,453
45,940
235,325
79,000
21,420
574,683
26,066
600,749
254,540
183,883
54,584
28,015
33,783
37,658
337,923
91,000
11,903
546,246
31,266
577,512
296,454
$ 501,106
$ 480,037
$ 541,017
$1.13
1.13
$1.09
1.09
$1.24
1.24
2012 Annual Report
2012 Annual Report
11
Performance Measures (unaudited)
PROFITABILITY MEASURES:
Return on average assets
Return on average tangible assets(1)
Return on average stockholders’ equity
Return on average tangible stockholders’ equity(1)
Efficiency ratio
Interest rate spread
Net interest margin
Dividends paid per common share
For the Twelve Months
Ended December 31,
2012
2011
2010
1.18%
1.28
9.06
16.80
40.75
3.11
3.21
$1.00
1.17%
1.28
8.73
16.52
40.03
3.37
3.46
$1.00
1.29%
1.42
10.03
19.57
35.99
3.45
3.45
$1.00
At or for the Twelve Months
Ended December 31,
2012
2011
2010
ASSET QUALITY MEASURES:
Non-performing non-covered loans to total non-covered loans
Non-performing non-covered assets to total non-covered assets
Allowance for losses on non-covered loans to non-performing non-covered loans
Allowance for losses on non-covered loans to total non-covered loans
Net charge-offs to average loans
CAPITAL MEASURES:
Book value per share
Tangible book value per share(1)
Stockholders’ equity to total assets
Tangible stockholders’ equity to tangible assets(1)
Adjusted tangible stockholders’ equity to adjusted tangible assets(1)
OTHER BALANCE SHEET MEASURES:
Non-covered loans held for investment to total loans
Total loans to total assets
Securities to total assets
Deposits to total assets
Wholesale borrowings to total assets
0.96%
0.71
53.93
0.52
0.13
$ 12.88
7.26
12.81%
7.65
7.79
85.9%
72.0
11.1
56.4
29.6
1.28%
1.07
42.14
0.54
0.35
2.63%
1.77
25.45
0.67
0.21
$ 12.69
6.91
$ 12.73
7.04
13.24% 13.42%
7.78
7.95
7.79
7.90
84.2%
72.2
10.8
53.1
32.0
81.2%
70.9
11.6
53.1
30.3
(1) Tangible stockholders’ equity and adjusted tangible stockholders’ equity are non-GAAP capital measures. Please see the discussion and
reconciliations of our GAAP and non-GAAP capital measures on page 13.
12
Reconciliation of GAAP and Non-GAAP Capital Measures (unaudited)
Although tangible stockholders’ equity, adjusted tangible stockholders’ equity, tangible assets, and adjusted tangible
assets are not calculated in accordance with GAAP, management uses these non-GAAP capital measures in their analysis
of our performance. We believe that these non-GAAP capital measures are an important indication of our ability to
grow both organically and through business combinations, and, with respect to tangible stockholders’ equity and adjusted
tangible stockholders’ equity, our ability to pay dividends and to engage in various capital management strategies.
Tangible stockholders’ equity and adjusted tangible stockholders’ equity, tangible assets and adjusted tangible
assets, and the related capital measures should not be considered in isolation or as a substitute for stockholders’ equity,
total assets, or any other measure calculated in accordance with GAAP. Moreover, the manner in which we calculate
these non-GAAP capital measures may differ from that of other companies reporting measures with similar names.
The following table presents the reconciliations of our stockholders’ equity, tangible stockholders’ equity, and
adjusted tangible stockholders’ equity; total assets, tangible assets, and adjusted tangible assets; and the related capital
measures at or for the twelve months ended December 31, 2012, 2011, and 2010:
(in thousands)
Total Stockholders’ Equity
Less: Goodwill
Core deposit intangibles
Tangible stockholders’ equity
Total Assets
Less: Goodwill
Core deposit intangibles
Tangible assets
Tangible Stockholders’ Equity
Add back: Accumulated other comprehensive loss, net of tax
Adjusted tangible stockholders’ equity
Tangible Assets
Add back: Accumulated other comprehensive loss, net of tax
Adjusted tangible assets
Average Stockholders’ Equity
Less: Average goodwill and core deposit intangibles
Average tangible stockholders’ equity
Average Assets
Less: Average goodwill and core deposit intangibles
Average tangible assets
Net Income
Add back: Amortization of core deposit intangibles, net of tax
Adjusted net income
Return on average assets
Return on average tangible assets
Return on average stockholders’ equity
Return on average tangible stockholders’ equity
At or for the Twelve Months Ended December 31,
2012
2011
2010
$ 5,656,264
(2,436,131)
(32,024)
$ 5,565,704
(2,436,131)
(51,668)
$ 5,526,220
(2,436,159)
(77,734)
$ 3,188,109
$ 3,077,905
$ 3,012,327
$44,145,100
(2,436,131)
(32,024)
$42,024,302
(2,436,131)
(51,668)
$41,190,689
(2,436,159)
(77,734)
$ 41,676,945
$ 39,536,503
$ 38,676,796
$ 3,188,109
61,705
$ 3,077,905
71,910
$ 3,012,327
45,695
$ 3,249,814
$ 3,149,815
$ 3,058,022
$ 41,676,945
61,705
$ 39,536,503
71,910
$ 38,676,796
45,695
$ 41,738,650
$ 39,608,413
$ 38,722,491
$ 5,531,055
(2,478,523)
$ 5,501,639
(2,500,864)
$ 5,392,305
(2,529,993)
$ 3,052,532
$ 3,000,775
$ 2,862,312
$ 42,493,455
(2,478,523)
$ 41,131,010
(2,500,864)
$ 41,843,613
(2,529,993)
$ 40,014,932
$ 38,630,146
$ 39,313,620
$501,106
11,786
$512,892
1.18%
1.28
9.06
16.80
$480,037
15,640
$541,017
19,073
$495,677
$560,090
1.17%
1.28
8.73
16.52
1.29%
1.42
10.03
19.57
2012 Annual Report
2012 Annual Report
13
Corporate Directory
NEW YORK COMMUNITY
BANCORP, INC.
BOARD OF DIRECTORS (1)
CHAIRMAN OF THE BOARD
Dominick Ciampa (2)
Principal and Partner
Ciampa Organization
MEMBERS
Maureen E. Clancy (3)
Chief Financial Officer and Owner
Clancy & Clancy Brokerage Ltd.
Hanif “Wally” Dahya (4)
Chief Executive Officer
The Y Company LLC
Joseph R. Ficalora (5)
President and Chief Executive Officer
New York Community Bancorp, Inc.
William C. Frederick, M.D. (6)
Surgeon (retired)
St. Vincent’s Hospital
Max L. Kupferberg
Chairman of the Board of Directors
Kepco, Inc.
Michael J. Levine (7)
Principal, Norse Realty Group, Inc. & Affiliates;
Partner, Levine & Schmutter, CPAs
James J. O’Donovan
Senior Executive Vice President
and Chief Lending Officer (retired)
New York Community Bancorp, Inc.
Ronald A. Rosenfeld
Chairman (retired)
Federal Housing Finance Board
Lawrence J. Savarese
Senior Partner (retired)
KPMG
John M. Tsimbinos (8)
Chairman and Chief Executive Officer (retired)
TR Financial Corp. and
Roosevelt Savings Bank
Spiros J. Voutsinas
President and Chief Executive Officer
Atlantic Bank Division
New York Commercial Bank
Robert Wann
Senior Executive Vice President and
Chief Operating Officer
New York Community Bancorp, Inc.
DIRECTOR EMERITUS
Donald M. Blake
President and Chief Executive Officer (retired)
Joseph J. Blake & Associates, Inc.
EXECUTIVE OFFICERS
Joseph R. Ficalora
President and Chief Executive Officer
Robert Wann
Senior Executive Vice President and
Chief Operating Officer
Thomas R. Cangemi
Senior Executive Vice President and
Chief Financial Officer
James J. Carpenter
Senior Executive Vice President and
Chief Lending Officer
EXECUTIVE VICE PRESIDENTS
Ilene A. Angarola
Director, Investor Relations
Robert D. Brown
Chief Information Officer
William P. DiSalvatore
Chief Risk Officer
Frank Esposito
Director, Loan Administration
Cynthia Flynn
Chief Administrative Officer
Robert P. Gillespie
Corporate Director, Employee Development
Andrew Kaplan
Director, Financial Solutions Group, and
President, CFS Investments, Inc.
Anthony M. Lewis
Chief Credit Officer
John J. Pinto
Chief Accounting Officer
R. Patrick Quinn, Esq.
Corporate Secretary and
Chief Corporate Governance Officer
Bernard A. Terlizzi
Chief Human Resources Officer
Robert J. Tolomer
Director, Capital Planning, Stress Testing,
and Loss Share Administration
Thomas J. Zammit
Chief Appraiser
(1) Directors of New York Community Bancorp, Inc. also
serve as directors of New York Community Bank and
New York Commercial Bank.
(2) Mr. Ciampa also serves as Chairman of the Boards
of Directors of New York Community Bank and
New York Commercial Bank.
(3) Mrs. Clancy chairs the Compensation and Insurance
Committees of the Board.
(4) Mr. Dahya chairs the Asset and Liability and
Investment Committees of the Board.
(5) Mr. Ficalora serves as a director on each of our
Divisional Boards.
(6) Dr. Frederick also serves as a director on the
Richmond County Savings Bank Divisional Board.
(7) Mr. Levine chairs the Audit, Risk Assessment, and
Nominating and Corporate Governance Committees
of the Board.
(8) Mr. Tsimbinos also serves as a director of the
Atlantic Bank Divisional Board.
14
AFFILIATE OFFICERS
NEW YORK COMMERCIAL BANK
Spiros J. Voutsinas
President and Chief Executive Officer
Atlantic Bank Division
Dennis D. Jurs
Executive Vice President and Chief Lending Officer
Kenneth M. Scheriff
Executive Vice President and Regional Manager,
Commercial Lending
NEW YORK COMMUNITY BANK
NYCB MORTGAGE COMPANY, LLC
Jon K. Baymiller
President and Chief Executive Officer
Paul Harris
Executive Vice President and Director,
Residential Loan Administration
PETER B. CANNELL & CO., INC.
Joseph B. Werner
Chairman, President, and Chief Executive Officer
DIVISIONAL BANK DIRECTORS
QUEENS COUNTY SAVINGS BANK
Joseph R. Ficalora
President
Hon. Claire Shulman
Queens Borough President (retired);
President & Chief Executive Officer
Flushing Willets Point Corona LDC
Michael R. Stoler
Managing Director
Madison Realty Capital
RICHMOND COUNTY SAVINGS BANK
Michael F. Manzulli
Chairman;
Former Chairman and Chief Executive Officer
Richmond County Bancorp, Inc. and
Richmond County Savings Bank
Godfrey H. Carstens
President (retired)
Carstens Electrical Supply
Peter J. Esposito
Senior Mortgage Lending Officer (retired)
New York Community Bank
James L. Kelley, Esq.
Partner
Lahr, Dillon, Manzulli, Kelley & Penett, P.C.
Hon. Guy V. Molinari
Richmond County Borough President (retired);
Former U.S. Congressman
and New York State Assemblyman;
Managing Partner, The Molinari Group;
Of Counsel, Russo, Scamardella & D’Amato
DIVISIONAL DIRECTOR EMERITUS
Robert S. Farrell
President (retired)
H.S. Farrell, Inc.
THE ROSLYN SAVINGS BANK
John R. Bransfield, Jr.
President;
Former President, Roslyn Bancorp, Inc. and
The Roslyn Savings Bank
Thomas J. Calabrese, Jr.
Vice President, Operations
Daniel Gale Agency
ATLANTIC BANK
Spiros J. Voutsinas
President
Nicolas Bornozis
President
Capital Link Inc.
John Catsimatidis
Chairman and Chief Executive Officer
Red Apple Group
Andrew J. Jacovides
Former Ambassador, Cyprus
Savas Konstantinides
President and Chief Executive Officer
Omega Brokerage
Spiros Milonas
President
Ionian Management Inc.
Mitchell Rutter
President
Essex Capital Partners
OHIO SAVINGS BANK
Ronald A. Rosenfeld
Chairman
Leslie D. Dunn
Independent Director
Federal Home Loan Bank of Cincinnati
Robert P. Duvin
Partner
Littler Mendelson, PC
Keith V. Mabee
Vice Chairman
Dix & Eaton
Rev. Robert L. Niehoff, S.J.
President
John Carroll University
2012 Annual Report
2012 Annual Report
15
Shareholder Reference
CORPORATE HEADQUARTERS
615 Merrick Avenue
Westbury, NY 11590-6607
Phone:
Fax:
Online: www.myNYCB.com
(516) 683-4100
(516) 683-8385
INVESTOR RELATIONS
Shareholders, analysts, and others seeking information about New York Community
Bancorp, Inc. are invited to contact our Department of Investor Relations at:
Phone: (516) 683-4420
Fax:
(516) 683-4424
E-mail: ir@myNYCB.com
Online: ir.myNYCB.com
Copies of our earnings releases and other financial publications, including our Annual
Report on Form 10-K filed with the U.S. Securities and Exchange Commission (“SEC”), are
available without charge upon request.
Information about our financial performance may also be found at ir.myNYCB.com, the
Investor Relations portion of our website, under “Strategies & Results.” Earnings releases,
dividend announcements, and other press releases are typically available at this site upon
issuance, and SEC documents are typically available within minutes of being filed. In addi-
tion, shareholders wishing to receive e-mail notification each time a press release, SEC filing,
or other corporate event is posted to our website may do so by clicking on “Register for
E-mail Alerts,” and following the prompts.
ONLINE DELIVERY OF PROXY MATERIALS
To arrange to receive next year’s Annual Report to Shareholders and proxy materials
electronically, rather than in hard copy, please visit ir.myNYCB.com, click on “Request Online
Delivery of Proxy Materials,” and follow the prompts.
SHAREHOLDER ACCOUNT INQUIRIES
To review the status of your shareholder account, expedite a change of address, transfer
shares, or perform various other account-related functions, please contact our stock registrar,
transfer agent, and dividend disbursement agent, Computershare, directly.
Computershare is available to assist you 24 hours a day, seven days a week, through its
toll-free Interactive Voice Response system or through its online Investor Centre™. In addi-
tion, customer service representatives are available to assist you Monday through Friday,
9:00 a.m. to 7:00 p.m. (Eastern Time), except for New York Stock Exchange holidays.
You may contact Computershare in any of the following ways:
Online:
www.computershare.com/investor
By phone:
In the U.S. & Canada: (866) 293-6077
International: (201) 680-6578
TDD lines for hearing-impaired investors:
In the U.S. & Canada: (866) 231-5469
International: (201) 680-6610
By U.S. mail:
P.O. Box 43006
Providence, RI 02940-3006
By overnight mail:
250 Royall Street
Canton, MA 02021-1011
In all correspondence with Computershare, be sure to mention New York Community
Bancorp and to provide your name as it appears on your shareholder account, along with
your account number, daytime phone number, and current address.
16
DIVIDEND POLICY
We typically pay a quarterly cash dividend on or about the 15th day of February, May,
August, and November to shareholders of record on or about the 5th day of those months.
Dividends are typically declared during the third or fourth week of January, April, July, and
October and announced in our earnings releases. As declaration, record, and payable dates
are subject to change, you may wish to confirm them by visiting ir.myNYCB.com and clicking
on “Dividend History.”
Dividend Reinvestment and Stock Purchase Plan
Under our Dividend Reinvestment and Stock Purchase Plan (the “Plan”), registered
shareholders may purchase additional shares of New York Community Bancorp by reinvest-
ing their cash dividends, and by making optional cash purchases ranging from a minimum
of $50 to a maximum of $10,000 per transaction, up to a maximum of $100,000 per calendar
year. In addition, new investors may purchase their initial shares through the Plan. The Plan
brochure is available from Computershare and may also be accessed by clicking on “Dividend
Reinvestment and Stock Purchase Plan” at ir.myNYCB.com.
Direct Deposit of Dividends
Registered shareholders may arrange to have their quarterly cash dividends deposited
directly into their checking or savings accounts on the payable date. For more information,
please contact Computershare or click on “Shareholder Services” at ir.myNYCB.com.
ANNUAL MEETING OF SHAREHOLDERS
The 2013 Annual Meeting of Shareholders will be held at 10:00 a.m. Eastern Time on
Thursday, June 6th, at the Sheraton LaGuardia East Hotel, 135-20 39th Avenue, in Flushing,
New York. Shareholders of record as of April 9, 2013 will be eligible to receive notice of, and
to vote at, the 2013 Annual Meeting.
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
KPMG LLP
345 Park Avenue
New York, NY 10154-0102
STOCK LISTING
Shares of New York Community Bancorp common stock are traded under the symbol
“NYCB” on the New York Stock Exchange. Price information appears daily in The Wall Street
Journal under “NY CmntyBcp” and in other major newspapers under similar abbreviations
of the Company’s name. Trading information may also be found at ir.myNYCB.com under
“Stock Information” or by visiting www.nyse.com and entering our trading symbol.
The Bifurcated Option Note Unit SecuritiESSM (“BONUSES units”) issued through the
Company’s subsidiary, New York Community Capital Trust V, also trade on the New York
Stock Exchange, under the symbol “NYCB PR U.” Trading information for the BONUSES
units may be found at ir.myNYCB.com under “Stock Information.”
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2012 Annual Report
2012 Annual Report
NEW YORK COMMUNITY BANCORP, INC.
2012 ANNUAL REPORT ON FORM 10-K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the fiscal year ended: December 31, 2012
Commission File Number 1-31565
NEW YORK COMMUNITY BANCORP, INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
06-1377322
(I.R.S. Employer
Identification No.)
615 Merrick Avenue, Westbury, New York 11590
(Zip code)
(Address of principal executive offices)
(Registrant’s telephone number, including area code) (516) 683-4100
Securities registered pursuant to Section 12(b) of the Act:
Common Stock, $0.01 par value
and
Bifurcated Option Note Unit SecuritiESSM
(Title of Class)
New York Stock Exchange
(Name of exchange on which registered)
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes (cid:95) No (cid:133)(cid:3)
(cid:3)
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes(cid:133) No (cid:95)(cid:3)
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 (cid:95) No (cid:133)
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not
contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. (cid:95)(cid:3)
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 (cid:95) No (cid:133)
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 “accelerated filer,” “large accelerated filer,” and “smaller reporting company” in Rule 12b-
2 of the Exchange Act. Large Accelerated Filer (cid:95) Accelerated Filer (cid:133) Non-Accelerated Filer (cid:133) Smaller Reporting Company (cid:133)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes(cid:133) No (cid:95)(cid:3)
As of June 30, 2012, the aggregate market value of the shares of common stock outstanding of the registrant was $5.3 billion,
excluding 15,295,074 shares held by all directors and executive officers of the registrant. This figure is based on the closing price of
the registrant’s common stock on June 29, 2012, $12.53, as reported by the New York Stock Exchange.
The number of shares of the registrant’s common stock outstanding as of February 22, 2013 was 440,353,812 shares.
Portions of the definitive Proxy Statement for the Annual Meeting of Shareholders to be held on June 6, 2013 are incorporated by
reference into Part III.
Documents Incorporated by Reference
CROSS REFERENCE INDEX
Forward-Looking Statements and Associated Risk Factors
Glossary
PART I
Item 1. Business
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2.
Item 3.
Item 4. Mine Safety Disclosures
Properties
Legal Proceedings
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases
of Equity Securities
Selected Financial Data
Item 6.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Item 8.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A. Controls and Procedures
Item 9B. Other Information
Financial Statements and Supplementary Data
PART III
Item 10. Directors, Executive Officers, and Corporate Governance
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
Item 13. Certain Relationships and Related Transactions, and Director Independence
Item 14. Principal Accountant Fees and Services
PART IV
Item 15. Exhibits and Financial Statement Schedules
Signatures
Certifications
Page
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29
38
38
39
39
40
43
44
90
95
161
161
162
162
162
162
162
162
163
166
For the purpose of this Annual Report on Form 10-K, the words “we,” “us,” “our,” and the “Company” are
used to refer to New York Community Bancorp, Inc. and our consolidated subsidiaries, including New York
Community Bank and New York Commercial Bank (the “Community Bank” and the “Commercial Bank,”
respectively, and collectively, the “Banks”).
FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISK FACTORS
This report, like many written and oral communications presented by New York Community Bancorp, Inc.
and our authorized officers, may contain certain forward-looking statements regarding our prospective performance
and strategies within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. We intend such forward-looking statements to be covered by the safe
harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995,
and are including this statement for purposes of said safe harbor provisions.
Forward-looking statements, which are based on certain assumptions and describe future plans, strategies, and
expectations of the Company, are generally identified by use of the words “anticipate,” “believe,” “estimate,”
“expect,” “intend,” “plan,” “project,” “seek,” “strive,” “try,” or future or conditional verbs such as “will,” “would,”
“should,” “could,” “may,” or similar expressions. Our ability to predict results or the actual effects of our plans or
strategies is inherently uncertain. Accordingly, actual results may differ materially from anticipated results.
There are a number of factors, many of which are beyond our control, that could cause actual conditions,
events, or results to differ significantly from those described in our forward-looking statements. These factors
include, but are not limited to:
(cid:120) general economic conditions, either nationally or in some or all of the areas in which we and our customers
conduct our respective businesses;
(cid:120) conditions in the securities markets and real estate markets or the banking industry;
(cid:120) changes in real estate values, which could impact the quality of the assets securing the loans in our
portfolio;
(cid:120) changes in interest rates, which may affect our net income, prepayment penalty income, mortgage banking
income, and other future cash flows, or the market value of our assets, including our investment securities;
(cid:120) changes in the quality or composition of our loan or securities portfolios;
(cid:120) changes in our capital management policies, including those regarding business combinations, dividends,
and share repurchases, among others;
(cid:120) our use of derivatives to mitigate our interest rate exposure;
(cid:120) changes in competitive pressures among financial institutions or from non-financial institutions;
(cid:120) changes in deposit flows and wholesale borrowing facilities;
(cid:120) changes in the demand for deposit, loan, and investment products and other financial services in the
markets we serve;
(cid:120) our timely development of new lines of business and competitive products or services in a changing
environment, and the acceptance of such products or services by our customers;
(cid:120) changes in our customer base or in the financial or operating performances of our customers’ businesses;
(cid:120) any interruption in customer service due to circumstances beyond our control;
(cid:120) our ability to retain key personnel;
(cid:120) potential exposure to unknown or contingent liabilities of companies we have acquired or may acquire in
the future;
(cid:120) the outcome of pending or threatened litigation, or of other matters before regulatory agencies, whether
currently existing or commencing in the future;
(cid:120) environmental conditions that exist or may exist on properties owned by, leased by, or mortgaged to the
Company;
(cid:120) any interruption or breach of security resulting in failures or disruptions in customer account management,
general ledger, deposit, loan, or other systems;
(cid:120) operational issues stemming from, and/or capital spending necessitated by, the potential need to adapt to
industry changes in information technology systems, on which we are highly dependent;
(cid:120) the ability to keep pace with, and implement on a timely basis, technological changes;
(cid:120) changes in legislation, regulation, policies, or administrative practices, whether by judicial, governmental,
or legislative action, including, but not limited to, the Dodd-Frank Wall Street Reform and Consumer
Protection Act, and other changes pertaining to banking, securities, taxation, rent regulation and housing,
1
financial accounting and reporting, environmental protection, and insurance, and the ability to comply with
such changes in a timely manner;
(cid:120) changes in the monetary and fiscal policies of the U.S. Government, including policies of the U.S.
Department of the Treasury and the Board of Governors of the Federal Reserve System;
(cid:120) changes in accounting principles, policies, practices, or guidelines;
(cid:120) any breach in performance by the Community Bank under our loss sharing agreements with the FDIC;
(cid:120) changes in our estimates of future reserves based upon the periodic review thereof under relevant
regulatory and accounting requirements;
(cid:120) changes in regulatory expectations relating to predictive models we use in connection with stress testing
and other forecasting or in the assumptions on which such modeling and forecasting are predicated;
(cid:120) the ability to successfully integrate any assets, liabilities, customers, systems, and management personnel of
any banks we may acquire into our operations, and our ability to realize related revenue synergies and cost
savings within expected time frames;
(cid:120) changes in our credit ratings or in our ability to access the capital markets;
(cid:120) war or terrorist activities; and
(cid:120) other economic, competitive, governmental, regulatory, technological, and geopolitical factors affecting our
operations, pricing, and services.
It should be noted that we routinely evaluate opportunities to expand through acquisitions and frequently
conduct due diligence activities in connection with such opportunities. As a result, acquisition discussions and, in
some cases, negotiations, may take place at any time, and acquisitions involving cash or our debt or equity securities
may occur.
In addition, the timing and occurrence or non-occurrence of events may be subject to circumstances beyond
our control.
Please see Item 1A, “Risk Factors,” for a further discussion of factors that could affect the actual outcome of
future events.
Readers are cautioned not to place undue reliance on the forward-looking statements contained herein, which
speak only as of the date of this report. Except as required by applicable law or regulation, we undertake no
obligation to update these forward-looking statements to reflect events or circumstances that occur after the date on
which such statements were made.
2
GLOSSARY
BARGAIN PURCHASE GAIN
A bargain purchase gain exists when the fair value of the assets acquired in a business combination exceeds
the fair value of the assumed liabilities. Assets acquired in an FDIC-assisted transaction may include cash payments
received from the FDIC.
BASIS POINT
Throughout this filing, the year-over-year changes that occur in certain financial measures are reported in
terms of basis points. Each basis point is equal to one hundredth of a percentage point, or 0.01%.
BOOK VALUE PER SHARE
As we define it, book value per share refers to the amount of stockholders’ equity attributable to each
outstanding share of common stock, after any unallocated shares held by our Employee Stock Ownership Plan
(“ESOP”) have been subtracted from the total number of shares outstanding. Book value per share is determined by
dividing total stockholders’ equity at the end of a period by the adjusted number of shares at the same date. The
following table indicates the number of shares outstanding both before and after the total number of unallocated
ESOP shares were subtracted at December 31, 2012, 2011, 2010, 2009, and 2008. As there were no unallocated
ESOP shares remaining at December 31, 2012, 2011, or 2010, both numbers were the same at those dates.
Shares outstanding
Less: Unallocated ESOP shares
Shares used for book value per
2012
439,050,966
--
2011
437,344,796
--
2010
435,646,845
--
2009
433,197,332
(299,248)
2008
344,985,111
(631,303)
share computation
439,050,966
437,344,796
435,646,845
432,898,084
344,353,808
BROKERED DEPOSITS
Refers to funds obtained, directly or indirectly, by or through deposit brokers that are then deposited into one
or more deposit accounts at a bank.
CHARGE-OFF
Refers to the amount of a loan balance that has been written off against the allowance for losses on non-
covered loans.
COMMERCIAL REAL ESTATE (“CRE”) LOAN
A mortgage loan secured by either an income-producing property owned by an investor and leased primarily
for commercial purposes or, to a lesser extent, an owner-occupied building used for business purposes. The CRE
loans in our portfolio are typically secured by office buildings, retail shopping centers, light industrial centers with
multiple tenants, or mixed-use properties.
COST OF FUNDS
The interest expense associated with interest-bearing liabilities, typically expressed as a ratio of interest
expense to the average balance of interest-bearing liabilities for a given period.
COVERED LOANS AND OTHER REAL ESTATE OWNED (“OREO”)
Refers to the loans and OREO we acquired in our AmTrust Bank (“AmTrust”) and Desert Hills Bank (“Desert
Hills”) acquisitions, which are “covered” by loss sharing agreements with the FDIC. Please see the definition of
“Loss Sharing Agreements” that appears later in this glossary.
DERIVATIVE
A term used to define a broad base of financial instruments, including swaps, options, and futures contracts,
whose value is based upon, or derived from, an underlying rate, price, or index (such as interest rates, foreign
currency, commodities, or prices of other financial instruments such as stocks or bonds).
3
DIVIDEND PAYOUT RATIO
The percentage of our earnings that is paid out to shareholders in the form of dividends. It is determined by
dividing the dividend paid per share during a period by our diluted earnings per share during the same period of
time.
DIVIDEND YIELD
Refers to the yield generated on a shareholder’s investment in the form of dividends. The current dividend
yield is calculated by annualizing the current quarterly cash dividend and dividing that amount by the current stock
price.
EFFICIENCY RATIO
Measures total operating expenses as a percentage of the sum of net interest income and non-interest income.
GAAP
This abbreviation is used to refer to U.S. generally accepted accounting principles, on the basis of which
financial statements are prepared and presented.
GOODWILL
Refers to the difference between the purchase price and the fair value of an acquired company’s assets, net of
the liabilities assumed. Goodwill is reflected as an asset on the balance sheet and is tested at least annually for
impairment.
GOVERNMENT-SPONSORED ENTERPRISES (“GSEs”)
Refers to a group of financial services corporations that were created by the United States Congress to
enhance the availability, and reduce the cost, of credit to certain targeted borrowing sectors, including home finance.
The GSEs include, but are not limited to, the Federal National Mortgage Association (“Fannie Mae”), the Federal
Home Loan Mortgage Corporation (“Freddie Mac”), and the Federal Home Loan Banks (the “FHLBs”).
GSE OBLIGATIONS
Refers to GSE mortgage-related securities (both certificates and collateralized mortgage obligations) and GSE
debentures.
INTEREST RATE LOCK COMMITMENTS (“IRLCs”)
Refers to commitments we have made to originate new one-to-four family loans at specific (i.e., locked-in)
interest rates. The volume of IRLCs at the end of a period is a leading indicator of loans to be originated in the near
future.
INTEREST RATE SENSITIVITY
Refers to the likelihood that the interest earned on assets and the interest paid on liabilities will change as a
result of fluctuations in market interest rates.
INTEREST RATE SPREAD
The difference between the yield earned on average interest-earning assets and the cost of average interest-
bearing liabilities.
LOAN-TO-VALUE (“LTV”) RATIO
Measures the balance of a loan as a percentage of the appraised value of the underlying property.
LOSS SHARING AGREEMENTS
Refers to the agreements we entered into with the FDIC in connection with the loans and OREO we acquired
in our AmTrust and Desert Hills acquisitions. The agreements call for the FDIC to reimburse us for 80% of any
losses (and share in 80% of any recoveries) up to specified thresholds and to reimburse us for 95% of any losses
(and share in 95% of any recoveries) beyond those thresholds with respect to the acquired assets, for specified
periods of time. All of the loans and OREO acquired in the AmTrust and Desert Hills acquisitions are subject to
4
these agreements and are referred to in this report either as “covered loans,” “covered OREO,” or, when discussed
together, “covered assets.”
MORTGAGE BANKING INCOME
Refers to the income generated by our mortgage banking operation, which is recorded in non-interest income.
Mortgage banking income has two components: income generated from the origination of one-to-four family loans
for sale (“income from originations”) and income generated by servicing such loans (“servicing income”).
MORTGAGE SERVICING RIGHTS (“MSRs”)
Refers to the asset that the Company recognizes, at fair value, when it sells loans but retains the right to
service those loans.
MULTI-FAMILY LOAN
A mortgage loan secured by a rental or cooperative apartment building with more than four units.
NET INTEREST INCOME
The difference between the interest and dividends earned on interest-earning assets and the interest paid or
payable on interest-bearing liabilities.
NET INTEREST MARGIN
Measures net interest income as a percentage of average interest-earning assets.
NON-ACCRUAL LOAN
A loan generally is classified as a “non-accrual” loan when it is over 90 days past due. When a loan is placed
on non-accrual status, we cease the accrual of interest owed, and previously accrued interest is reversed and charged
against interest income. A loan generally is returned to accrual status when the loan is less than 90 days past due and
we have reasonable assurance that the loan will be fully collectible.
NON-COVERED LOANS AND OTHER REAL ESTATE OWNED
Refers to all of the loans and OREO in our portfolio that are not covered by our loss sharing agreements with
the FDIC.
NON-PERFORMING LOANS AND ASSETS
Non-performing loans consist of non-accrual loans and loans over 90 days past due and still accruing interest.
Non-performing assets consist of non-performing loans and OREO.
RENT-CONTROL/RENT-STABILIZATION
In New York City, where the vast majority of the properties securing our multi-family loans are located, the
amount of rent that tenants may be charged on the apartments in certain buildings is restricted under certain “rent-
control” or “rent-stabilization” laws. Rent-control laws apply to apartments in buildings that were constructed prior
to February 1947. An apartment is said to be “rent-controlled” if the tenant has been living continuously in the
apartment for a period of time beginning prior to July 1971. When a rent-controlled apartment is vacated, it typically
becomes “rent-stabilized.” Rent-stabilized apartments are generally located in buildings with six or more units that
were built between February 1947 and January 1974. Rent-controlled and -stabilized apartments tend to be more
affordable to live in because of the applicable regulations, and buildings with a preponderance of such rent-regulated
apartments are therefore less likely to experience vacancies in times of economic adversity.
REPURCHASE AGREEMENTS
Repurchase agreements are contracts for the sale of securities owned or borrowed by the Banks with an
agreement to repurchase those securities at an agreed-upon price and date. The Banks’ repurchase agreements are
primarily collateralized by GSE obligations and other mortgage-related securities, and are entered into with either
the FHLBs or various brokerage firms.
5
RETURN ON AVERAGE ASSETS
A measure of profitability determined by dividing net income by average assets for a given period.
RETURN ON AVERAGE STOCKHOLDERS’ EQUITY
A measure of profitability determined by dividing net income by average stockholders’ equity for a given
period.
TOTAL DELINQUENCIES
Refers to the sum of non-performing loans and loans 30 to 89 days past due.
WHOLESALE BORROWINGS
Refers to advances drawn by the Banks against their respective lines of credit with the FHLBs, their
repurchase agreements with the FHLBs and various brokerage firms, and federal funds purchased.
YIELD
The interest income associated with interest-earning assets, typically expressed as a ratio of interest income to
the average balance of interest-earning assets for a given period.
6
ITEM 1.
BUSINESS
General
PART I
With total assets of $44.1 billion at December 31, 2012, we are the 20th largest publicly traded bank holding
company in the nation, and operate the nation’s second largest public thrift. Reflecting our growth through ten
business combinations between November 30, 2001 and March 26, 2010, we currently have 275 branch offices,
combined, in five states.
We are organized under Delaware Law as a multi-bank holding company and have two primary subsidiaries:
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”).
New York Community Bank
Established in 1859, the Community Bank is a New York State-chartered savings bank with 240 branches that
currently operate through seven local divisions.
In New York, we currently serve our Community Bank customers through Roslyn Savings Bank, with 54
branches on Long Island, a suburban market east of New York City comprised of Nassau and Suffolk counties;
Queens County Savings Bank, with 33 branches in the New York City borough of Queens; Richmond County
Savings Bank, with 22 branches in the borough of Staten Island; and Roosevelt Savings Bank, with eight branches
in the borough of Brooklyn. In the Bronx and neighboring Westchester County, we currently have four branches that
operate directly under the name “New York Community Bank.”
In New Jersey, we serve our Community Bank customers through 51 branches that operate under the name
Garden State Community Bank.
In Florida and Arizona, where we have 26 and 14 branches, respectively, we serve our customers through the
AmTrust Bank division of the Community Bank.
In Ohio, we serve our Community Bank customers through 28 branches of Ohio Savings Bank.
We compete for depositors in these diverse markets by emphasizing service and convenience, and by offering
a comprehensive menu of traditional and non-traditional products and services. Of our 240 Community Bank
branches, 222 feature weekend hours, including 57 that are open seven days a week. Of these, 40 are in-store
branches in New York and New Jersey that are primarily located in supermarkets. The Community Bank also offers
24-hour banking online and by phone.
We also are a leading producer of multi-family loans in New York City, with an emphasis on non-luxury
apartment buildings that feature below-market rents. In addition to multi-family loans, which are our principal asset,
we originate commercial real estate loans (primarily in New York City, as well as Long Island and New Jersey) and,
to a much lesser extent, acquisition, development, and construction loans, and commercial and industrial loans.
We also originate one-to-four family loans, primarily through our mortgage banking operation, which was
acquired in connection with our acquisition of certain assets, and assumption of certain liabilities, of AmTrust Bank
(“AmTrust”) on December 4, 2009. In 2012, the vast majority of the one-to-four family loans we originated were
agency-conforming loans sold to government-sponsored enterprises (“GSEs”), servicing retained. A smaller number
of one-to-four family loans were originated for our own portfolio and consisted of hybrid jumbo loans with
conservative loan-to-value ratios.
Although the vast majority of the loans we produce for investment (i.e., for our portfolio) are secured by
properties or businesses in New York City, and to a lesser extent, Long Island and New Jersey, the one-to-four
family loans we originate through our mortgage banking operation are for the purchase or refinancing of homes in
all 50 states.
7
New York Commercial Bank
Established through an acquisition on December 30, 2005, the Commercial Bank is a New York State-
chartered commercial bank with 35 branches in Manhattan, Queens, Brooklyn, Westchester County, and Long
Island, including 18 that operate under the name “Atlantic Bank.”
The Commercial Bank competes for customers by emphasizing personal service and by addressing the needs
of small and mid-size businesses, professional associations, and government agencies with a comprehensive menu
of business solutions, including installment loans, revolving lines of credit, and cash management services. In
addition, the Commercial Bank offers 24-hour banking online and by phone.
Customers of the Commercial Bank may transact their business at any of our 240 Community Bank branches,
and Community Bank customers may transact their business at any of our 35 Commercial Bank branches. In
addition, customers of both Banks have 24-hour access to their accounts through 263 of our 287 ATM locations in
the five states we serve.
Our Websites
We also serve our customers through three connected websites: www.myNYCB.com,
www.NewYorkCommercialBank.com, and www.NYCBfamily.com. In addition to providing our customers with
24-hour access to their accounts, and information regarding our products and services, hours of service, and
locations, these websites provide extensive information about the Company for the investment community. Earnings
releases, dividend announcements, and other press releases are posted upon issuance to the Investor Relations
portion of our websites. In addition, our filings with the U.S. Securities and Exchange Commission (the “SEC”)
(including our annual report on Form 10-K; our quarterly reports on Form 10-Q; and our current reports on Form 8-
K), and all amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934, are available without charge, typically within minutes of being filed. The websites also
provide information regarding our Board of Directors and management team and the number of Company shares
held by these insiders, as well as certain Board Committee charters and our corporate governance policies. The
content of our websites shall not be deemed to be incorporated by reference into this Annual Report.
Overview
Lending
Loans represented $31.8 billion, or 72.0%, of total assets at December 31, 2012. Our loan portfolio has three
components:
1. Covered Loans – Covered loans refers to the loans we acquired in our FDIC-assisted acquisitions of
AmTrust and Desert Hills Bank (“Desert Hills”), and are covered by loss sharing agreements with the FDIC. At
December 31, 2012, the balance of covered loans was $3.3 billion; of this amount, $3.0 billion were one-to-four
family loans. To distinguish these “covered loans” from the loans in our portfolio that are not subject to these
agreements (and that, for the most part, we ourselves originated), all other loans in our portfolio are referred to as
“non-covered loans.”
2. Non-Covered Loans Held for Sale – Non-covered loans held for sale refers to the one-to-four family loans
that we originate and aggregate for sale, primarily to GSEs. At December 31, 2012, the held-for-sale loan portfolio
totaled $1.2 billion. In the twelve months ended at that date, we originated $10.9 billion of one-to-four family loans
for sale.
3. Non-Covered Loans Held for Investment – Referring to the loans we originate for our own portfolio, non-
covered loans held for investment totaled $27.3 billion at December 31, 2012. The year-end balance consisted
primarily of loans secured by multi-family buildings in New York City, most of which are subject to rent regulation
and therefore feature below-market rents. In addition to multi-family loans, loans held for investment include
commercial real estate loans and, to a much lesser extent, acquisition, development, and construction loans;
commercial and industrial loans; and one-to-four family loans.
8
The components of our held-for-investment loan portfolio are described below:
Multi-Family Loans
Multi-family loans represented $18.6 billion, or 68.2%, of non-covered loans held for investment at
December 31, 2012, and represented $5.8 billion, or 64.6%, of the loans we originated for investment over the
course of the year.
The multi-family loans we originate are typically secured by non-luxury apartment buildings in New York
City that are subject to rent regulation and therefore feature below-market rents. Such loans are typically made to
long-term property owners with a history of growing their cash flows over time by making improvements to certain
apartments which, in turn, enables them to increase the rents their tenants pay. We also make multi-family loans to
property owners who are seeking to expand their real estate holdings by purchasing additional properties.
Our typical multi-family loan has a term of ten years, with a fixed rate of interest in years one through five and
a rate that either adjusts annually or is fixed for the five years that follow. Loans that prepay in the first five years
generate prepayment penalties ranging from five percentage points to one percentage point of the then-current loan
balance, depending on the remaining term of the loan. If a loan is still outstanding in the sixth year and the borrower
selects the fixed rate option, the prepayment penalties typically reset to a range of five percentage points to one
percentage point over years six through ten.
We also originate multi-family loans for terms of 12 years, with a fixed rate of interest in years one through
seven and a rate that either adjusts annually or is fixed for the next five years. Loans that prepay in the first seven
years generate prepayment penalties ranging from five percentage points to one percentage point of the then-current
loan balance, depending on the remaining term of the loan. If a loan is still outstanding in the eighth year and the
borrower selects the fixed rate option, the prepayment penalties typically reset to the range of five percentage points
to one percentage point over years eight through twelve.
Reflecting the structure of our multi-family credits, and the tendency of our borrowers to refinance their loans
as their cash flows increase, our average multi-family loan had an expected weighted average life of 2.9 years at
December 31, 2012.
Commercial Real Estate (“CRE”) Loans
CRE loans represented $7.4 billion, or 27.3%, of non-covered loans held for investment at December 31,
2012, and $2.4 billion, or 26.8%, of loans produced for investment over the course of the year. Our CRE loans
feature the same structure as our multi-family credits, and had a weighted average life of 3.4 years at December 31,
2012.
The CRE loans we originate are secured by income-producing properties such as office buildings, retail
centers, multi-tenanted light industrial properties, and mixed-use buildings, most of which are located in New York
City and, to a lesser extent, on Long Island and in New Jersey.
Acquisition, Development, and Construction (“ADC”) Loans
Our ADC loan portfolio largely consists of loans that were originated for land acquisition, development, and
construction of multi-family and residential tract projects in New York City and Long Island, and, to a lesser extent,
for the construction of owner-occupied one-to-four family homes and commercial properties.
ADC loans represented $397.9 million, or 1.5%, of non-covered loans held for investment at the end of
December, reflecting our decision to limit such lending in the current housing market, and the increased deployment
of our cash flows into multi-family and CRE loans.
Commercial and Industrial (“C&I”) Loans
Included in “other loans” in our Consolidated Statements of Condition, C&I loans represented $590.0 million,
or 2.2%, of non-covered loans held for investment at December 31, 2012. We offer a broad range of loans to small
and mid-size businesses for working capital (including inventory and receivables), business expansion, and the
purchase of equipment and machinery.
9
One-to-Four Family Loans
Non-covered one-to-four family loans totaled $203.4 million at the end of this December, and consisted of
loans acquired in our business combinations prior to 2009 and loans originated in 2012 for our own portfolio.
Asset Quality
The quality of our assets improved in 2012, as an improvement in market conditions combined with the efforts
of our Loan Workout Unit to reduce the balance of non-performing loans. Non-performing non-covered loans
declined $64.5 million year-over-year to $261.3 million at December 31, 2012, representing 0.96% of total non-
covered loans. Reflecting the decline in non-performing loans, and a $55.3 million decline in other real estate owned
(“OREO”) to $29.3 million, non-performing assets fell $119.8 million year-over-year to $290.6 million,
representing 0.71% of total non-covered assets at December 31, 2012.
At December 31, 2012, the allowance for losses on non-covered loans totaled $140.9 million, representing
0.52% of total non-covered loans at that date. The provision for losses on non-covered loans totaled $45.0 million in
the twelve months ended December 31, 2012, while net charge-offs totaled $41.3 million, representing 0.13% of
average loans.
Notwithstanding the year-over-year improvement in the economy and local market conditions, it should be
noted that economic weakness resulting from a further contraction of real estate values and/or an increase in office
vacancies, bankruptcies, and/or unemployment, could result in our experiencing an increase in charge-offs and/or an
increase in our loan loss provision, either of which could have an adverse impact on our earnings in the future.
Funding Sources
We have four primary funding sources: the deposits we gather through our branch network or add through
acquisitions, and brokered deposits; wholesale borrowings, primarily in the form of Federal Home Loan Bank
(“FHLB”) advances and repurchase agreements with the FHLB and various brokerage firms; cash flows produced
by the repayment and sale of loans; and cash flows produced by securities repayments and sales.
Deposits totaled $24.9 billion at December 31, 2012, and included certificates of deposit (“CDs”) of $9.1
billion; NOW and money market accounts of $8.8 billion; savings accounts of $4.2 billion; and non-interest-bearing
accounts of $2.8 billion. Included in the year-end balance of deposits were deposits of $1.3 billion that were
assumed in a transaction with Aurora Bank FSB, on June 28, 2012.
Borrowed funds totaled $13.4 billion at the end of the year, with wholesale borrowings representing $13.1
billion, or 97.3%, of that balance and 29.6% of total assets at December 31, 2012.
Loan repayments and sales generated cash flows of $18.5 billion in 2012, while securities repayments and
sales generated cash flows of $3.7 billion.
Revenues
Our primary source of income is net interest income, which is the difference between the interest income
generated by the loans we produce and the securities we invest in, and the interest expense produced by our interest-
bearing deposits and borrowed funds. The level of net interest income we generate is influenced by a variety of
factors, some of which are within our control (e.g., our mix of interest-earning assets and interest-bearing liabilities),
and some of which are not (e.g., the level of short-term interest rates and market rates of interest, the degree of
competition we face for deposits and loans, and the level of prepayment penalty income we receive). In 2012, net
interest income fell $40.4 million to $1.2 billion, as a $35.2 million decline in interest expense was exceeded by a
$75.6 million decline in interest income. Prepayment penalty income added $120.4 million to interest income in
2012, as a decline in market interest rates combined with the improvement in local market conditions to trigger an
increase in multi-family and CRE loan demand.
While net interest income is our primary source of income, it is supplemented by the non-interest income we
produce. In 2012, our largest source of non-interest income was the income generated by our mortgage banking
operation, primarily through the origination of loans for sale to GSEs. Mortgage banking income accounted for
$178.6 million of total non-interest income, as income from originations of $193.2 million was tempered by a
servicing loss of $14.6 million. In addition, fee income from deposits and loans accounted for $38.3 million of 2012
non-interest income, while BOLI income and other income accounted for $30.5 million and $35.7 million,
respectively. Included in other income are the revenues from the sale of third-party investment products in our
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branches, and revenues from our investment advisory firm, Peter B. Cannell & Co., Inc., which had $1.7 billion of
assets under management at December 31, 2012.
Efficiency
The efficiency of our operation has long been a distinguishing characteristic, stemming from our focus on
multi-family lending, which is broker-driven, and from the expansion of our franchise through acquisitions rather
than de novo growth. For the twelve months ended December 31, 2012, our efficiency ratio was 40.75%.
Our Market
Our current market for deposits consists of the 26 counties in the five states that are served by our branch
network, including all five boroughs of New York City, Nassau and Suffolk Counties on Long Island, and
Westchester County in New York; Essex, Hudson, Mercer, Middlesex, Monmouth, Ocean, and Union Counties in
New Jersey; Maricopa and Yavapai Counties in Arizona; Cuyahoga, Lake, and Summit Counties in Ohio; and
Broward, Collier, Lee, Miami-Dade, Palm Beach, and St. Lucie Counties in Florida.
The market for the loans we produce varies, depending on the type of loan. For example, the vast majority of
our multi-family loans are collateralized by rental apartment buildings in New York City, which is also home to the
majority of the properties collateralizing our CRE loans. In contrast, our mortgage banking business originates one-
to-four family loans in all 50 states.
Competition for Deposits
The combined population of the 26 counties where our branches are located is approximately 29.6 million,
and the number of banks and thrifts we compete with currently exceeds 350. With total deposits of $24.9 billion at
December 31, 2012, we ranked ninth among all bank and thrift depositories serving these 26 counties, and ranked
first or second among all thrift depositories in the following counties: Queens, Richmond, and Nassau Counties in
New York; Essex County in New Jersey; Cuyahoga County in Ohio; Maricopa County in Arizona; and Broward and
Palm Beach Counties in Florida. (Market share information was provided by SNL Financial.) We also compete for
deposits with other financial institutions, including credit unions, Internet banks, and brokerage firms.
Our ability to attract and retain deposits is not only a function of short-term interest rates and industry
consolidation, but also the competitiveness of the rates being offered by other financial institutions within our
marketplace.
Competition for deposits is also influenced by several internal factors, including the opportunity to assume or
acquire deposits through business combinations; the cash flows produced through loan and securities repayments
and sales; and the availability of attractively priced wholesale funds. In addition, the degree to which we compete
for deposits is influenced by the liquidity needed to fund our loan production and other outstanding commitments.
We vie for deposits and customers by placing an emphasis on convenience and service and, from time to time,
by offering specific products at highly competitive rates. In addition to our 240 Community Bank branches and 35
Commercial Bank branches, we have 287 ATM locations, including 263 that operate 24 hours a day. Our customers
also have 24-hour access to their accounts through our bank-by-phone service and online through our three websites,
www.myNYCB.com, www.NewYorkCommercialBank.com, and www.NYCBfamily.com. We also offer certain
higher-paying money market accounts through two dedicated websites, myBankingDirect.com and
AmTrustDirect.com.
In addition to 192 traditional branches in New York, New Jersey, Florida, Ohio, and Arizona, our Community
Bank currently has 40 “in-store” branches in New York and New Jersey—39 in supermarkets and one in a drug
store. Because of the proximity of these branches to our traditional locations, our customers have the option of doing
their banking seven days a week in many of the communities we serve. This service model is an important
component of our efforts to attract and maintain deposits in a highly competitive marketplace. Of the remaining
Community Bank locations, four branches are located on corporate campuses in New Jersey and four are customer
service centers in New York.
We also compete by complementing our broad selection of traditional banking products with an extensive
menu of alternative financial services, including insurance, annuities, and mutual funds of various third-party service
providers. Furthermore, customers who come to us seeking a residential mortgage can begin the application process
by phone, online, or in any branch.
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In addition to checking and savings accounts, Individual Retirement Accounts, and CDs for both businesses
and consumers, the Commercial Bank offers a suite of cash management products to address the needs of small and
mid-size businesses, municipal and county governments, school districts, and professional associations.
Another competitive advantage is our strong community presence, with April 14, 2012 having marked the
153rd year of service of our forebear, Queens County Savings Bank. We have found that our longevity, as well as
our strong capital position, are especially appealing to customers seeking a strong, stable, and service-oriented bank.
Competition for Loans
Our success as a producer of multi-family, CRE, ADC, and C&I loans is substantially tied to the economic
health of the markets where we lend. Local economic conditions have a significant impact on loan demand, the
value of the collateral securing our credits, and the ability of our borrowers to repay their loans.
The competition we face for loans also varies with the type of loan we are originating. In New York City,
where the majority of the buildings collateralizing our multi-family loans are located, we compete for such loans on
the basis of timely service and the expertise that stems from being a specialist in our field.
Following the financial crisis in 2008, most of our competitors were either acquired or chose to step away
from the multi-family lending space. As the multi-family housing market began to reflect improvement, we began to
see new entrants to this market, as well as the return of certain competitors who had opted to step away during the
downward cycle turn. Nonetheless, Fannie Mae and Freddie Mac continued to be our primary competition for multi-
family loans in 2012, consistent with our experience in 2011 and 2010.
While we anticipate that competition for multi-family loans will continue in the future, we believe that the
significant volume of multi-family loans we produced in 2012 is indicative of our ability to compete for such
business as conditions in our market continue to improve. That said, no assurances can be made that we will be able
to sustain or increase our level of multi-family loan production, given the extent to which it is influenced not only by
competition, but also by such factors as the level of market interest rates, the availability and cost of funding, real
estate values, market conditions, and the state of the economy.
Similarly, our ability to compete for CRE loans on a go-forward basis depends on the same factors that impact
our ability to compete for multi-family credits, and on the degree to which other CRE lenders choose to step up their
loan production as local market conditions continue to improve.
While we continue to originate ADC and C&I loans for investment, such loans represent a much smaller
portion of our loan portfolio.
Our mortgage banking operation competes with a significant number of financial and non-financial
institutions throughout the nation that also originate and aggregate one-to-four family loans for sale. In 2012, held-
for-sale originations totaled $10.9 billion; of this amount, $10.8 billion, or 99.5%, were agency-conforming loans
and $53.8 million, or 0.05%, were non-conforming (i.e., jumbo) loans. Reflecting the volume of loans funded in
2012 by our mortgage banking operation, we ranked 13th among the nation’s leading aggregators of one-to-four
family loans in the United States.
Environmental Issues
We encounter certain environmental risks in our lending activities. The existence of hazardous materials may
make it unattractive for a lender to foreclose on the properties securing its loans. In addition, under certain
conditions, lenders may become liable for the costs of cleaning up hazardous materials found on such properties. We
attempt to mitigate such environmental risks by requiring either that a borrower purchase environmental insurance
or that an appropriate environmental site assessment be completed as part of our underwriting review on the initial
granting of CRE and ADC loans, regardless of location, and of any out-of-state multi-family loans we may produce.
In addition, we order an updated environmental analysis prior to foreclosing on such properties, and typically
maintain ownership of the multi-family, CRE, and ADC properties we acquire through foreclosure in subsidiaries.
Our attention to environmental risks also applies to the properties and facilities that house our bank
operations. Prior to acquiring a large-scale property, a Phase 1 Environmental Property Assessment is typically
performed by a licensed professional engineer to determine the integrity of, and/or the potential risk associated with,
the facility and the property on which it is built. Properties and facilities of a smaller scale are evaluated by qualified
in-house assessors, as well as by industry experts in environmental testing and remediation. This two-pronged
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approach identifies potential risks associated with asbestos-containing material, above and underground storage
tanks, radon, electrical transformers (which may contain PCBs), ground water flow, storm and sanitary discharge,
and mold, among other environmental risks. These processes assist us in mitigating environmental risk by enabling
us to identify potential issues prior to, and following, our acquisition of bank properties.
Subsidiary Activities
The Community Bank has formed, or acquired through merger transactions, 33 active subsidiary corporations.
Of these, 22 are direct subsidiaries of the Community Bank and 11 are subsidiaries of Community Bank-owned
entities.
The 22 direct subsidiaries of the Community Bank are:
Name
DHB Real Estate, LLC
Mt. Sinai Ventures, LLC
Jurisdiction of
Organization
Arizona
Delaware
NYCB Community Development Corp. Delaware
NYCB Mortgage Company, LLC
Delaware
Realty Funding Company, LLC
Delaware
Eagle Rock Investment Corp.
New Jersey
Pacific Urban Renewal, Inc.
Somerset Manor Holding Corp.
New Jersey
New Jersey
Synergy Capital Investments, Inc.
New Jersey
1400 Corp.
BSR 1400 Corp.
Bellingham Corp.
Blizzard Realty Corp.
CFS Investments, Inc.
Main Omni Realty Corp.
NYB Realty Holding Company, LLC
O.B. Ventures, LLC
RCBK Mortgage Corp.
RCSB Corporation
New York
New York
New York
New York
New York
New York
New York
New York
New York
New York
RSB Agency, Inc.
New York
New York
Richmond Enterprises, Inc.
Roslyn National Mortgage Corporation New York
Purpose
Organized to own interests in real estate
A joint venture partner in the development,
construction, and sale of a 177-unit golf course
community in Mt. Sinai, NY, all the units of which
were sold by December 31, 2006
Formed to invest in community development
activities
Originates and aggregates one-to-four family loans
for sale, primarily servicing retained
Holding company for subsidiaries owning an interest
in real estate
Formed to hold and manage investment portfolios for
the Company
Owns a branch building
Holding company for four subsidiaries that owned
and operated two assisted-living facilities in New
Jersey in 2005
Formed to hold and manage investment portfolios for
the Company
Manages properties acquired by foreclosure while
they are being marketed for sale
Organized to own interests in real estate
Organized to own interests in real estate
Organized to own interests in real estate
Sells non-deposit investment products
Organized to own interests in real estate
Holding company for subsidiaries owning an interest
in real estate
A joint venture partner in a 370-unit residential
community in Plainview, New York, all the units of
which were sold by December 31, 2004
Organized to own interests in certain multi-family
loans
Owns a branch building, Ferry Development Holding
Company, and Woodhaven Investments, Inc.
Sells non-deposit investment products
Holding company for Peter B. Cannell & Co., Inc.
Formerly operated as a mortgage loan originator and
servicer and currently holds an interest in its former
office space
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The 11 subsidiaries of Community Bank-owned entities are:
Name
Columbia Preferred Capital Corporation Delaware
Jurisdiction of
Organization
Ferry Development Holding Company
Delaware
Peter B. Cannell & Co., Inc.
Delaware
Roslyn Real Estate Asset Corp.
Delaware
Walnut Realty Funding Company, LLC Delaware
Delaware
Woodhaven Investments, Inc.
Your New REO, LLC
Delaware
Ironbound Investment Company, Inc.
New Jersey
The Hamlet at Olde Oyster Bay, LLC
New York
The Hamlet at Willow Creek, LLC
New York
Richmond County Capital Corporation
New York
Purpose
A real estate investment trust (“REIT”) organized for
the purpose of investing in mortgage-related assets
Formed to hold and manage investment portfolios for
the Company
Advises high net worth individuals and institutions on
the management of their assets
A REIT organized for the purpose of investing in
mortgage-related assets
Established to own Bank-owned properties
Holding company for Roslyn Real Estate Asset Corp.
and Ironbound Investment Company, Inc.
Owns a website that lists bank-owned properties for
sale
A REIT organized for the purpose of investing in
mortgage-related assets that also is the principal
shareholder of Richmond County Capital Corp.
Organized as a joint venture, part-owned by O.B.
Ventures, LLC
Organized as a joint venture, part-owned by Mt. Sinai
Ventures, LLC
A REIT organized for the purpose of investing in
mortgage-related assets that also is the principal
shareholder of Columbia Preferred Capital Corp.
There are 67 additional entities that are subsidiaries of a Community Bank-owned entity organized to own
interests in real estate.
The Commercial Bank has four active subsidiary corporations, two of which are subsidiaries of Commercial
Bank-owned entities.
The two direct subsidiaries of the Commercial Bank are:
Name
Beta Investments, Inc.
Jurisdiction of
Organization
Delaware
Gramercy Leasing Services, Inc.
New York
Purpose
Holding company for Omega Commercial Mortgage
Corp. and Long Island Commercial Capital Corp.
Provides equipment lease financing
The two subsidiaries of Commercial Bank-owned entities are:
Name
Omega Commercial Mortgage Corp.
Jurisdiction of
Organization
Delaware
Long Island Commercial Capital Corp.
New York
Purpose
A REIT organized for the purpose of investing in
mortgage-related assets
A REIT organized for the purpose of investing in
mortgage-related assets
There are two additional entities that are subsidiaries of the Commercial Bank that are organized to own
interests in real estate.
The Company owns special business trusts that were formed for the purpose of issuing capital and common
securities and investing the proceeds thereof in the junior subordinated debentures issued by the Company. Please
see Note 7, “Borrowed Funds,” in Item 8, “Financial Statements and Supplementary Data,” for a further discussion
of the Company’s special business trusts.
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The Company also has one non-banking subsidiary that was established in connection with the acquisition of
Atlantic Bank of New York.
Personnel
At December 31, 2012, the number of full-time equivalent employees was 3,458. Our employees are not
represented by a collective bargaining unit, and we consider our relationship with our employees to be good.
Federal, State, and Local Taxation
The Company is subject to federal, state, and local income taxes. Please see the discussion of “Income Taxes”
in “Critical Accounting Policies” in Item 7, “Management’s Discussion and Analysis of Financial Condition and
Results of Operations,” later in this report.
Regulation and Supervision
General
The Community Bank is a New York State-chartered savings bank and its deposit accounts are insured under
the Deposit Insurance Fund (the “DIF”) of the Federal Deposit Insurance Corporation (the “FDIC”) up to applicable
legal limits. The Commercial Bank is a New York State-chartered commercial bank and its deposit accounts also are
insured by the DIF up to applicable legal limits. Both the Community Bank and the Commercial Bank are subject to
extensive regulation and supervision by the New York State Department of Financial Services (the “NYDFS”)
(formerly, the New York State Banking Department), as their chartering agency, by the FDIC, as their insurer of
deposits, and by the Consumer Financial Protection Bureau (the “CFPB”), which was created under the Dodd-Frank
Wall Street Reform and Consumer Protection Act (the “Dodd Frank Act”) in 2011 to implement and enforce
consumer protection laws applying to banks. The Banks must file reports with the NYDFS, the FDIC, and the CFPB
concerning their activities and financial condition, in addition to obtaining regulatory approvals prior to entering into
certain transactions such as mergers with, or acquisitions of, other depository institutions. Furthermore, the Banks
are periodically examined by the NYDFS and the FDIC to assess compliance with various regulatory requirements,
including safety and soundness considerations. This regulation and supervision establishes a comprehensive
framework of activities in which a savings bank and a commercial bank can engage, and is intended primarily for
the protection of the insurance fund and depositors. The regulatory structure also gives the regulatory authorities
extensive discretion in connection with their supervisory and enforcement activities and examination policies,
including policies with respect to the classification of assets and the establishment of adequate loan loss allowances
for regulatory purposes. Any change in such regulation, whether by the NYDFS, the FDIC, or through legislation,
could have a material adverse impact on the Company, the Banks, and their operations, and the Company’s
shareholders.
The Company is required to file certain reports under, and otherwise comply with, the rules and regulations of
the Federal Reserve Board of Governors (the “FRB”), the FDIC, the NYDFS, and the SEC under federal securities
laws. In addition, the FRB periodically examines the Company. Certain of the regulatory requirements applicable to
the Community Bank, the Commercial Bank, and the Company are referred to below or elsewhere herein. However,
such discussion is not meant to be a complete explanation of all laws and regulations and is qualified in its entirety
by reference to the actual laws and regulations.
The Dodd-Frank Act
The Dodd-Frank Act has significantly changed the current bank regulatory structure and will continue to
affect, into the immediate future, the lending and investment activities and general operations of depository
institutions and their holding companies.
In addition to creating the CFPB, the Dodd-Frank Act requires the FRB to establish minimum consolidated
capital requirements for bank holding companies that are as stringent as those required for insured depository
institutions; the components of Tier 1 capital will be restricted to capital instruments that are currently considered to
be Tier 1 capital for insured depository institutions. In addition, the proceeds of trust preferred securities will be
excluded from Tier 1 capital unless (i) such securities are issued by bank holding companies with assets of less than
$500 million, or (ii) such securities were issued prior to May 19, 2010 by bank or savings and loan holding
companies with assets of less than $15 billion. The exclusion of such proceeds will be phased in over a three-year
period beginning in 2013.
The Dodd-Frank Act created a new supervisory structure for oversight of the U.S. financial system, including
the establishment of a new council of regulators, the Financial Stability Oversight Council, to monitor and address
15
systemic risks to the financial system. Non-bank financial companies that are deemed to be significant to the
stability of the U.S. financial system and all bank holding companies with $50 billion or more in total consolidated
assets will be subject to heightened supervision and regulation. The FRB will implement prudential requirements
and prompt corrective action procedures for such companies.
The Dodd-Frank Act made many additional changes in banking regulation, including: authorizing depository
institutions, for the first time, to pay interest on business checking accounts; requiring originators of securitized
loans to retain a percentage of the risk for transferred loans; establishing regulatory rate-setting for certain debit card
interchange fees; and establishing a number of reforms for mortgage lending and consumer protection.
The Dodd-Frank Act also broadened the base for FDIC insurance assessments. The FDIC was required to
promulgate rules revising its assessment system so that it is based not on deposits, but on the average consolidated
total assets less the tangible equity capital of an insured institution. That rule took effect on April 1, 2011. The
Dodd-Frank Act also permanently increased the maximum amount of deposit insurance for banks, savings
institutions, and credit unions to $250,000 per depositor, retroactive to January 1, 2008, and provided non-interest-
bearing transaction accounts with unlimited deposit insurance through December 31, 2012.
Many of the provisions of the Dodd-Frank Act are not yet effective. The Dodd-Frank Act requires various
federal agencies to promulgate numerous and extensive implementing regulations over the next several years.
Although it therefore is difficult to predict at this time what impact the Dodd-Frank Act and the implementing
regulations will have on the Company and the Banks, they may have a material impact on operations through,
among other things, heightened regulatory supervision and increased compliance costs.
Capital Requirements
FDIC Capital Requirements
The FDIC has adopted risk-based capital guidelines to which the Community Bank and the Commercial Bank
are subject. The guidelines establish a systematic analytical framework that makes regulatory capital requirements
sensitive to differences in risk profiles among banking organizations. The Community Bank and the Commercial
Bank are required to maintain certain levels of regulatory capital in relation to regulatory risk-weighted assets. The
ratio of such regulatory capital to regulatory risk-weighted assets is referred to as a “risk-based capital ratio.” Risk-
based capital ratios are determined by allocating assets and specified off-balance sheet items to four risk-weighted
categories ranging from 0% to 100%, with higher levels of capital being required for the categories perceived as
representing greater risk.
These guidelines divide an institution’s capital into two tiers. The first tier (“Tier 1”) includes common equity,
retained earnings, certain non-cumulative perpetual preferred stock (excluding auction rate issues), and minority
interests in equity accounts of consolidated subsidiaries, less goodwill and other intangible assets (except mortgage
servicing rights and purchased credit card relationships subject to certain limitations). Supplementary (“Tier 2”)
capital includes, among other items, cumulative perpetual and long-term limited-life preferred stock, mandatorily
convertible securities, certain hybrid capital instruments, term subordinated debt, and the allowance for loan losses,
subject to certain limitations, and up to 45% of pre-tax net unrealized gains on equity securities with readily
determinable fair market values, less required deductions. Savings banks and commercial banks are required to
maintain a total risk-based capital ratio of at least 8%, of which at least 4% must be Tier 1 capital.
In addition, the FDIC has established regulations prescribing a minimum Tier 1 leverage capital ratio (the ratio
of Tier 1 capital to adjusted average assets as specified in the regulations). These regulations provide for a minimum
Tier 1 leverage capital ratio of 3% for institutions that meet certain specified criteria, including that they have the
highest examination rating and are not experiencing or anticipating significant growth. All other institutions are
required to maintain a Tier 1 leverage capital ratio of at least 4%. The FDIC may, however, set higher leverage and
risk-based capital requirements on individual institutions when particular circumstances warrant. Institutions
experiencing or anticipating significant growth are expected to maintain capital ratios, including tangible capital
positions, well above the minimum levels.
As of December 31, 2012, the Community Bank and the Commercial Bank were deemed to be well
capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, a
bank must maintain a minimum Tier 1 leverage capital ratio of 5%, a minimum Tier 1 risk-based capital ratio of 6%,
and a minimum total risk-based capital ratio of 10%. A summary of the regulatory capital ratios of the Banks at
December 31, 2012 appears in Note 17, “Regulatory Matters” in Item 8, “Financial Statements and Supplementary
Data.”
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The regulatory capital regulations of the FDIC and other federal banking agencies provide that the agencies
will take into account the exposure of an institution’s capital and economic value to changes in interest rate risk in
assessing capital adequacy. According to such agencies, applicable considerations include the quality of the
institution’s interest rate risk management process, overall financial condition, and the level of other risks at the
institution for which capital is needed. Institutions with significant interest rate risk may be required to hold
additional capital. The agencies have issued a joint policy statement providing guidance on interest rate risk
management, including a discussion of the critical factors affecting the agencies’ evaluation of interest rate risk in
connection with capital adequacy. Institutions that engage in specified amounts of trading activity may be subject to
adjustments in the calculation of the risk-based capital requirement to assure sufficient additional capital to support
market risk.
Federal Reserve Board Capital Requirements
The FRB has adopted capital adequacy guidelines for bank holding companies (on a consolidated basis) that
are substantially similar to, but somewhat less stringent than, those of the FDIC for the Community Bank and the
Commercial Bank. At December 31, 2012, the Company’s consolidated Total and Tier 1 capital exceeded these
requirements.
The Dodd-Frank Act required the FRB to issue consolidated regulatory capital requirements for bank holding
companies that are at least as stringent as those applicable to insured depository institutions. Such regulations
eliminated the use of certain instruments, such as cumulative preferred stock and trust preferred securities, as Tier 1
holding company capital. However, instruments issued before May 19, 2010 by bank holding companies with more
than $15 billion of consolidated assets are subject to a three-year phase-out from inclusion as Tier 1 capital,
beginning January 1, 2013. Based on the December 31, 2012 balance of the cumulative preferred stock and trust
preferred securities we issued, and absent any reduction in that balance over the three years ending January 1, 2016,
the elimination of such instruments would be expected to reduce our capital by $345.1 million, or 9.6%, at the end
of the three-year phase-in, and reduce our Tier 1 leverage capital ratio by 85 basis points over that time.
Bank holding companies are generally required to give the FRB prior written notice of any purchase or
redemption of its outstanding equity securities if the gross consideration for the purchase or redemption, when
combined with the net consideration paid for all such purchases or redemptions during the preceding twelve months,
is equal to 10% or more of the Company’s consolidated net worth. The FRB may disapprove such a purchase or
redemption if it determines that the proposal would constitute an unsafe or unsound practice, or would violate any
law, regulation, FRB order or directive, or any condition imposed by, or written agreement with, the FRB. The FRB
has adopted an exception to this approval requirement for well-capitalized bank holding companies that meet certain
other conditions.
Stress Testing
On October 9, 2012, the FDIC and the FRB issued final rules requiring certain large insured depository
institutions and bank holding companies to conduct annual capital-adequacy stress tests. Recognizing that banks and
their parent holding companies may have different primary federal regulators, the FDIC and FRB have attempted to
ensure that the standards of the final rules are consistent and comparable in the areas of scope of application,
scenarios, data collection, reporting, and disclosure. To implement section 165(i) of the Dodd-Frank Act, the rules
would apply to FDIC-insured state non-member banks and bank holding companies with total consolidated assets of
more than $10 billion (“covered institutions”). The final rules delay implementation for covered institutions with
total consolidated assets of between $10 billion and $50 billion until October 2013. The final rule requirement for
public disclosure of a summary of the stress testing results for these $10 billion-$50 billion covered institutions will
be implemented starting with the 2014 stress test, with the disclosure occurring by June 30, 2015. The final rules
define a stress test as a process to assess the potential impact of economic and financial scenarios on the
consolidated earnings, losses, and capital of the covered institution over a set planning horizon, taking into account
the current condition of the covered institution and its risks, exposures, strategies, and activities.
Under the rules, each covered institution with between $10 billion and $50 billion in assets would be required
to conduct annual stress tests using the bank’s and the bank holding company’s financial data as of September 30 of
that year to assess the potential impact of different scenarios on the consolidated earnings and capital of that bank
and its holding company and certain related items over a nine-quarter forward-looking planning horizon, taking into
account all relevant exposures and activities. On or before March 31 of each year, each covered institution,
including the Community Bank and the Company, would be required to report to the FDIC and the FRB,
respectively, in the manner and form prescribed in the rules, the results of the stress tests conducted by the covered
institution during the immediately preceding year. Based on the information provided by a covered institution in the
17
required reports to the FDIC and the FRB, as well as other relevant information, the FDIC and FRB would conduct
an analysis of the quality of the covered institution’s stress test processes and related results. The FDIC and FRB
envision that feedback concerning such analysis would be provided to a covered institution through the supervisory
process.
Consistent with the requirements of the Dodd-Frank Act, the rule would require each covered institution to
publish a summary of the results of its annual stress tests within 90 days of the required date for submitting its stress
test report to the FDIC and the FRB. As discussed below, if the Company were to exceed $50 billion in total
consolidated assets, it would become subject to a different set of FRB stress test regulations.
Stress Testing for Large Bank Holding Companies
If the Company were to exceed $50 billion in total consolidated assets (a “covered company”), the Company
would become subject to a different set of stress testing regulations administered by the FRB than those outlined
above. Under this scenario, the FRB will use its own models to evaluate whether each covered company has the
capital, on a total consolidated basis, necessary to continue operating under the economic and financial market
conditions of each scenario. The FRB’s analysis will include an assessment of the projected losses, net income, and
pro forma capital levels and regulatory capital ratio, tier 1 common ratio and other capital ratios for the covered
company and use such analytical techniques that the FRB determines to be appropriate to identify, measure, and
monitor risks of the covered company that may affect the financial stability of the United States.
The aim of the annual reviews is to ensure that large, complex banking institutions have robust, forward-
looking capital planning processes that account for their unique risks, and to help ensure that institutions have
sufficient capital to continue operations throughout times of economic and financial stress. Covered companies will
be expected to have credible plans that show they have sufficient capital to continue to lend to households and
businesses even under severely adverse conditions, and are well prepared to meet Basel III regulatory capital
standards as they are implemented in the United States.
A covered company’s capital adequacy will be assessed against a number of quantitative and qualitative
criteria, including projected performance under the stress scenarios provided by the FRB and the covered company’s
internal scenarios. Boards of directors of covered companies are required to review and approve capital plans before
submitting them to the FRB.
If the Company were to become a covered company, it would not be subject to these stress test requirements
until the following calendar year.
Standards for Safety and Soundness
Federal law requires each federal banking agency to prescribe, for the depository institutions under its
jurisdiction, standards that relate to, among other things, internal controls; information and audit systems; loan
documentation; credit underwriting; the monitoring of interest rate risk; asset growth; compensation; fees and
benefits; and such other operational and managerial standards as the agency deems appropriate. The federal banking
agencies adopted final regulations and Interagency Guidelines Establishing Standards for Safety and Soundness (the
“Guidelines”) to implement these safety and soundness standards. The Guidelines set forth the safety and soundness
standards that the federal banking agencies use to identify and address problems at insured depository institutions
before capital becomes impaired. If the appropriate federal banking agency determines that an institution fails to
meet any standard prescribed by the Guidelines, the agency may require the institution to provide it with an
acceptable plan to achieve compliance with the standard, as required by the Federal Deposit Insurance Act, as
amended, (the “FDI Act”). The final regulations establish deadlines for the submission and review of such safety
and soundness compliance plans.
Basel III
In the summer of 2012, our primary federal regulators published two notices of proposed rulemaking (the
“2012 Capital Proposals”) that would substantially revise the risk-based capital requirements applicable to bank
holding companies and depository institutions, including the Company and the Banks, compared to the current U.S.
risk-based capital rules, which are based on the international capital accords of the Basel Committee on Banking
Supervision (the “Basel Committee”) which are generally referred to as “Basel I.”
One of the 2012 Capital Proposals (the “Basel III Proposal”) addresses the components of capital and other
issues affecting the numerator in banking institutions’ regulatory capital ratios and would implement the Basel
Committee’s December 2010 framework, known as “Basel III,” for strengthening international capital standards.
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The other proposal (the “Standardized Approach Proposal”) addresses risk weights and other issues affecting the
denominator in banking institutions’ regulatory capital ratios and would replace the existing Basel I-derived risk
weighting approach with a more risk-sensitive approach based, in part, on the standardized approach in the Basel
Committee’s 2004 “Basel II” capital accords. Although the Basel III Proposal was proposed to come into effect on
January 1, 2013, the federal banking agencies jointly announced on November 9, 2012 that they did not expect any
of the proposed rules to become effective on that date. As proposed, the Standardized Approach Proposal would
come into effect on January 1, 2015.
The federal banking agencies have not proposed rules implementing the final liquidity framework of Basel III
and have not determined to what extent they will apply to U.S. banks that are not large, internationally active banks.
It is management’s belief that, as of December 31, 2012, we would meet all capital adequacy requirements
under the Basel III and Standardized Approach Proposals on a fully phased-in basis if such requirements were
currently effective. The regulations that are ultimately applicable to financial institutions may be substantially
different from the Basel III final framework as published in December 2010 and the proposed rules issued in June
2012. Management will continue to monitor these and any future proposals submitted by our regulators.
In addition, the FDIC has approved issuance of an interagency proposed rulemaking to implement certain
provisions of Section 171 of the Dodd-Frank Act (“Section 171”). Section 171 provides that the capital requirements
generally applicable to insured banks shall serve as a floor for other capital requirements the agencies establish. The
FDIC has noted that the advanced approaches of Basel III allow for reductions in risk-based capital requirements
below those generally applicable to insured banks and, accordingly, need to be modified to be consistent with
Section 171.
FDIC Regulations
The following discussion pertains to FDIC Regulations other than those already discussed on the preceding
pages:
Real Estate Lending Standards
The FDIC and the other federal banking agencies have adopted regulations that prescribe standards for
extensions of credit that (i) are secured by real estate, or (ii) are made for the purpose of financing construction or
improvements on real estate. The FDIC regulations require each institution to establish and maintain written internal
real estate lending standards that are consistent with safe and sound banking practices, and appropriate to the size of
the institution and the nature and scope of its real estate lending activities. The standards also must be consistent
with accompanying FDIC Guidelines, which include loan-to-value limitations for the different types of real estate
loans. Institutions are also permitted to make a limited amount of loans that do not conform to the proposed loan-to-
value limitations so long as such exceptions are reviewed and justified appropriately. The Guidelines also list a
number of lending situations in which exceptions to the loan-to-value standard are justified.
The FDIC, the Office of the Comptroller of the Currency, and the Board of Governors of the Federal Reserve
System (collectively, the “Agencies”) also have issued joint guidance entitled “Concentrations in Commercial Real
Estate Lending, Sound Risk Management Practices” (the “CRE Guidance”). The CRE Guidance, which addresses
land development, construction, and certain multi-family loans, as well as CRE loans, does not establish specific
lending limits but, rather, reinforces and enhances the Agencies’ existing regulations and guidelines for such lending
and portfolio management.
Dividend Limitations
The FDIC has authority to use its enforcement powers to prohibit a savings bank or commercial bank from
paying dividends if, in its opinion, the payment of dividends would constitute an unsafe or unsound practice. Federal
law prohibits the payment of dividends that will result in the institution failing to meet applicable capital
requirements on a pro forma basis. The Community Bank and the Commercial Bank are also subject to dividend
declaration restrictions imposed by New York State law as later discussed under “New York State Law.”
Investment Activities
Since the enactment of the Federal Deposit Insurance Corporation Improvement Act of 1991 (“FDICIA”), all
state-chartered financial institutions, including savings banks, commercial banks, and their subsidiaries, have
generally been limited to such activities as principal and equity investments of the type, and in the amount,
authorized for national banks. State law, FDICIA, and FDIC regulations permit certain exceptions to these
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limitations. For example, certain state-chartered savings banks, such as the Community Bank, may, with FDIC
approval, continue to exercise state authority to invest in common or preferred stocks listed on a national securities
exchange and in the shares of an investment company registered under the Investment Company Act of 1940, as
amended. Such banks may also continue to sell Savings Bank Life Insurance. In addition, the FDIC is authorized to
permit institutions to engage in state-authorized activities or investments not permitted for national banks (other than
non-subsidiary equity investments) for institutions that meet all applicable capital requirements if it is determined
that such activities or investments do not pose a significant risk to the insurance fund. The Gramm-Leach-Bliley Act
of 1999 and FDIC regulations impose certain quantitative and qualitative restrictions on such activities and on a
bank’s dealings with a subsidiary that engages in specified activities.
The Community Bank received grandfathering authority from the FDIC in 1993 to invest in listed stock and/or
registered shares subject to the maximum permissible investments of 100% of Tier 1 capital, as specified by the
FDIC’s regulations, or the maximum amount permitted by New York State Banking Law, whichever is less. Such
grandfathering authority is subject to termination upon the FDIC’s determination that such investments pose a safety
and soundness risk to the Community Bank or in the event that the Community Bank converts its charter or
undergoes a change in control.
Prompt Corrective Regulatory Action
Federal law requires, among other things, that federal bank regulatory authorities take “prompt corrective
action” with respect to institutions that do not meet minimum capital requirements. For such purposes, the law
establishes five capital tiers: well capitalized, adequately capitalized, undercapitalized, significantly
undercapitalized, and critically undercapitalized.
The FDIC has adopted regulations to implement prompt corrective action. Among other things, the regulations
define the relevant capital measures for the five capital categories. An institution is deemed to be “well capitalized”
if it has a total risk-based capital ratio of 10% or greater, a Tier 1 risk-based capital ratio of 6% or greater, and a
leverage capital ratio of 5% or greater, and is not subject to a regulatory order, agreement, or directive to meet and
maintain a specific capital level for any capital measure. An institution is deemed to be “adequately capitalized” if it
has a total risk-based capital ratio of 8% or greater, a Tier 1 risk-based capital ratio of 4% or greater, and generally a
leverage capital ratio of 4% or greater. An institution is deemed to be “undercapitalized” if it has a total risk-based
capital ratio of less than 8%, a Tier 1 risk-based capital ratio of less than 4%, or generally a leverage capital ratio of
less than 4%. An institution is deemed to be “significantly undercapitalized” if it has a total risk-based capital ratio
of less than 6%, a Tier 1 risk-based capital ratio of less than 3%, or a leverage capital ratio of less than 3%. An
institution is deemed to be “critically undercapitalized” if it has a ratio of tangible equity (as defined in the
regulations) to total assets that is equal to or less than 2%.
“Undercapitalized” institutions are subject to growth, capital distribution (including dividend), and other
limitations, and are required to submit a capital restoration plan. An institution’s compliance with such a plan is
required to be guaranteed by any company that controls the undercapitalized institution in an amount equal to the
lesser of 5% of the bank’s total assets when deemed undercapitalized or the amount necessary to achieve the status
of adequately capitalized. If an undercapitalized institution fails to submit an acceptable plan, it is treated as if it is
“significantly undercapitalized.” Significantly undercapitalized institutions are subject to one or more additional
restrictions including, but not limited to, an order by the FDIC to sell sufficient voting stock to become adequately
capitalized; requirements to reduce total assets, cease receipt of deposits from correspondent banks, or dismiss
directors or officers; and restrictions on interest rates paid on deposits, compensation of executive officers, and
capital distributions by the parent holding company.
Beginning 60 days after becoming “critically undercapitalized,” critically undercapitalized institutions also
may not make any payment of principal or interest on certain subordinated debt, extend credit for a highly leveraged
transaction, or enter into any material transaction outside the ordinary course of business. In addition, subject to a
narrow exception, the appointment of a receiver is required for a critically undercapitalized institution within 270
days after it obtains such status.
Enforcement
The FDIC has extensive enforcement authority over insured banks, including the Community Bank and the
Commercial Bank. This enforcement authority includes, among other things, the ability to assess civil money
penalties, to issue cease and desist orders, and to remove directors and officers. In general, these enforcement
actions may be initiated in response to violations of laws and regulations and unsafe or unsound practices.
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The FDIC has authority under federal law to appoint a conservator or receiver for an insured institution under
certain circumstances. The FDIC is required, with certain exceptions, to appoint a receiver or conservator for an
insured institution if that institution was critically undercapitalized on average during the calendar quarter beginning
270 days after the date on which the institution became critically undercapitalized. For this purpose, “critically
undercapitalized” means having a ratio of tangible equity to total assets of less than 2%. Please see “Prompt
Corrective Regulatory Action” earlier in this report.
The FDIC may also appoint a conservator or receiver for an insured institution on the basis of the institution’s
financial condition or upon the occurrence of certain events, including (i) insolvency (whereby the assets of the bank
are less than its liabilities to depositors and others); (ii) substantial dissipation of assets or earnings through
violations of law or unsafe or unsound practices; (iii) existence of an unsafe or unsound condition to transact
business; (iv) likelihood that the bank will be unable to meet the demands of its depositors or to pay its obligations
in the normal course of business; and (v) insufficient capital, or the incurrence or likely incurrence of losses that will
deplete substantially all of the institution’s capital with no reasonable prospect of replenishment of capital without
federal assistance.
Insurance of Deposit Accounts
The deposits of the Community Bank and the Commercial Bank are insured up to applicable limits by the
DIF. The DIF is the successor to the Bank Insurance Fund and the Savings Association Insurance Fund, which were
merged in 2006.
Under the FDIC’s risk-based assessment system, insured institutions are assigned to one of four risk
categories based upon supervisory evaluations, regulatory capital level, and certain other factors, with less risky
institutions paying lower assessments. An institution’s assessment rate depends upon the category to which it is
assigned and certain other factors. Historically, assessment rates ranged from seven to 77.5 basis points of each
institution’s deposit assessment base. On February 7, 2011, as required by the Dodd-Frank Act, the FDIC published
a final rule to revise the deposit insurance assessment system. The rule, which took effect April 1, 2011, changed the
assessment base used for calculating deposit insurance assessments from deposits to total assets less tangible (Tier
1) capital. Since the new base is larger than the previous base, the FDIC also lowered assessment rates so that the
rule would not significantly alter the total amount of revenue collected from the industry. The range of adjusted
assessment rates is now 2.5 to 45 basis points of the new assessment base; the Community Bank’s assessment
ranged within the low to middle part of that range in 2012, and the Commercial Bank’s assessment was in the lower
part of that range.
In addition, due to the decline in economic conditions, the deposit insurance provided by the FDIC per
account owner was raised to $250,000 for all types of accounts. That change, initially intended to be temporary, was
made permanent by the Dodd-Frank Act. In addition, the FDIC adopted an optional Temporary Liquidity Guarantee
Program (“TLGP”) under which, for a fee, non-interest-bearing transaction accounts would receive unlimited
insurance coverage until December 31, 2009 (later extended to December 31, 2010), and certain senior unsecured
debt issued by institutions and their holding companies between October 13, 2008 and June 30, 2009 (later extended
to October 31, 2009) would be guaranteed by the FDIC through June 30, 2012 or, in certain cases, until
December 31, 2012. The Banks both participated in the unlimited non-interest-bearing transaction account coverage
and, together with the Company, participated in the unsecured debt guarantee program. In December 2008, the
Company issued $90.0 million of fixed rate senior notes with a maturity date of June 22, 2012. In addition, the
Community Bank issued $512.0 million of fixed rate senior notes with a maturity date of December 16, 2011, which
was repaid on that date. The Dodd-Frank Act also provided for continued unlimited coverage for certain non-
interest-bearing transaction accounts until December 31, 2012.
The Dodd-Frank Act increased the minimum target DIF ratio from 1.15% of estimated insured deposits to
1.35% of estimated insured deposits. The FDIC must seek to achieve the 1.35% ratio by September 30, 2020.
Insured institutions with assets of $10 billion or more are supposed to fund the increase. The Dodd-Frank Act
eliminated the 1.5% maximum fund ratio, leaving it, instead, to the discretion of the FDIC. The FDIC has recently
exercised that discretion by establishing a long range fund ratio of 2%, which could result in our paying higher
deposit insurance premiums in the future.
In addition to the assessment for deposit insurance, institutions are required to make payments on bonds
issued in the late 1980s by the Financing Corporation to recapitalize a predecessor deposit insurance fund. That
payment is established quarterly, and is based on assessable deposits for the first three quarters and on assessable
assets for the fourth quarter of the year. In the calendar year ending December 31, 2012, the payment averaged 0.66
basis points of assessable deposits and 0.66 basis points of assessable assets, during the respective periods.
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Insurance of deposits may be terminated by the FDIC upon a finding that the institution has engaged in unsafe
or unsound practices, is in an unsafe or unsound condition to continue operations, or has violated any applicable law,
regulation, rule, order, or condition imposed by the FDIC. Management does not know of any practice, condition, or
violation that would lead to termination of the deposit insurance of either of the Banks.
Holding Company Regulation
Federal Regulation
The Company is currently subject to examination, regulation, and periodic reporting under the Bank Holding
Company Act of 1956, as amended (the “BHCA”), as administered by the FRB.
The Company is required to obtain the prior approval of the FRB to acquire all, or substantially all, of the
assets of any bank or bank holding company. Prior FRB approval would be required for the Company to acquire
direct or indirect ownership or control of any voting securities of any bank or bank holding company if, after giving
effect to such acquisition, it would, directly or indirectly, own or control more than 5% of any class of voting shares
of such bank or bank holding company. In addition, before any bank acquisition can be completed, prior approval
thereof may also be required to be obtained from other agencies having supervisory jurisdiction over the bank to be
acquired, including the NYDFS.
FRB regulations generally prohibit a bank holding company from engaging in, or acquiring, direct or indirect
control of more than 5% of the voting securities of any company engaged in non-banking activities. One of the
principal exceptions to this prohibition is for activities found by the FRB to be so closely related to banking or
managing or controlling banks as to be a proper incident thereto. Some of the principal activities that the FRB has
determined by regulation to be so closely related to banking are: (i) making or servicing loans; (ii) performing
certain data processing services; (iii) providing discount brokerage services; (iv) acting as fiduciary, investment, or
financial advisor; (v) leasing personal or real property; (vi) making investments in corporations or projects designed
primarily to promote community welfare; and (vii) acquiring a savings and loan association.
The FRB has issued a policy statement regarding the payment of dividends by bank holding companies. In
general, the FRB’s policies provide that dividends should be paid only out of current earnings and only if the
prospective rate of earnings retention by the bank holding company appears consistent with the organization’s
capital needs, asset quality, and overall financial condition. The FRB’s policies also require that a bank holding
company serve as a source of financial strength to its subsidiary banks by standing ready to use available resources
to provide adequate capital funds to those banks during periods of financial stress or adversity, and by maintaining
the financial flexibility and capital-raising capacity to obtain additional resources for assisting its subsidiary banks
where necessary. The Dodd-Frank Act codifies the source of financial strength policy and requires regulations to
facilitate its application. Under the prompt corrective action laws, the ability of a bank holding company to pay
dividends may be restricted if a subsidiary bank becomes undercapitalized. These regulatory policies could affect
the ability of the Company to pay dividends or otherwise engage in capital distributions.
Under the FDI Act, a depository institution may be liable to the FDIC for losses caused the DIF if a
commonly controlled depository institution were to fail. The Community Bank and the Commercial Bank are
commonly controlled within the meaning of that law.
The status of the Company as a registered bank holding company under the BHCA does not exempt it from
certain federal and state laws and regulations applicable to corporations generally, including, without limitation,
certain provisions of the federal securities laws.
The Company, the Community Bank, the Commercial Bank, and their respective affiliates will be affected by
the monetary and fiscal policies of various agencies of the United States government, including the Federal Reserve
System. In view of changing conditions in the national economy and in the money markets, it is difficult for
management to accurately predict future changes in monetary policy or the effect of such changes on the business or
financial condition of the Company, the Community Bank, or the Commercial Bank.
New York State Regulation
With the addition of the Commercial Bank, the Company became subject to regulation as a “multi-bank
holding company” under New York State law since it controls two banking institutions. Among other requirements,
this means that the Company must receive the approval of the New York State Banking Board prior to the
acquisition of 10% or more of the voting stock of another banking institution, or to otherwise acquire a banking
institution by merger or purchase.
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Transactions with Affiliates
Under current federal law, transactions between depository institutions and their affiliates are governed by
Sections 23A and 23B of the Federal Reserve Act and the FRB’s Regulation W promulgated thereunder. An affiliate
of a savings bank or commercial bank is any company or entity that controls, is controlled by, or is under common
control with, the institution, other than a subsidiary. Generally, an institution’s subsidiaries are not treated as
affiliates unless they are engaged in activities as principal that are not permissible for national banks. In a holding
company context, at a minimum, the parent holding company of an institution, and any companies that are
controlled by such parent holding company, are affiliates of the institution. Generally, Section 23A limits the extent
to which the institution or its subsidiaries may engage in “covered transactions” with any one affiliate to an amount
equal to 10% of the institution’s capital stock and surplus, and contains an aggregate limit on all such transactions
with all affiliates to an amount equal to 20% of such capital stock and surplus. The term “covered transaction”
includes the making of loans or other extensions of credit to an affiliate; the purchase of assets from an affiliate; the
purchase of, or an investment in, the securities of an affiliate; the acceptance of securities of an affiliate as collateral
for a loan or extension of credit to any person; or issuance of a guarantee, acceptance, or letter of credit on behalf of
an affiliate. Section 23A also establishes specific collateral requirements for loans or extensions of credit to, or
guarantees or acceptances on letters of credit issued on behalf of, an affiliate. Section 23B requires that covered
transactions and a broad list of other specified transactions be on terms substantially the same as, or at least as
favorable to, the institution or its subsidiary as similar transactions with non-affiliates.
The Sarbanes-Oxley Act of 2002 generally prohibits loans by the Company to its executive officers and
directors. However, the Sarbanes-Oxley Act contains a specific exemption for loans by an institution to its executive
officers and directors in compliance with federal banking laws. Section 22(h) of the Federal Reserve Act, and FRB
Regulation O adopted thereunder, governs loans by a savings bank or commercial bank to directors, executive
officers, and principal shareholders. Under Section 22(h), loans to directors, executive officers, and shareholders
who control, directly or indirectly, 10% or more of voting securities of an institution, and certain related interests of
any of the foregoing, may not exceed, together with all other outstanding loans to such persons and affiliated
entities, the institution’s total capital and surplus. Section 22(h) also prohibits loans above amounts prescribed by the
appropriate federal banking agency to directors, executive officers, and shareholders who control 10% or more of
the voting securities of an institution, and their respective related interests, unless such loan is approved in advance
by a majority of the board of the institution’s directors. Any “interested” director may not participate in the voting.
The loan amount (which includes all other outstanding loans to such person) as to which such prior board of director
approval is required, is the greater of $25,000 or 5% of capital and surplus or any loans aggregating over $500,000.
Further, pursuant to Section 22(h), loans to directors, executive officers, and principal shareholders must be made on
terms substantially the same as those offered in comparable transactions to other persons. There is an exception for
loans made pursuant to a benefit or compensation program that is widely available to all employees of the institution
and does not give preference to executive officers over other employees. Section 22(g) of the Federal Reserve Act
places additional limitations on loans to executive officers.
Community Reinvestment Act
Federal Regulation
Under the Community Reinvestment Act (“CRA”), as implemented by FDIC regulations, an institution has a
continuing and affirmative obligation consistent with its safe and sound operation to help meet the credit needs of its
entire community, including low and moderate income neighborhoods. The CRA does not establish specific lending
requirements or programs for financial institutions, nor does it limit an institution’s discretion to develop the types
of products and services that it believes are best suited to its particular community, consistent with the CRA. The
CRA requires the FDIC, in connection with its examinations, to assess the institution’s record of meeting the credit
needs of its community and to take such record into account in its evaluation of certain applications by such
institution. The CRA requires public disclosure of an institution’s CRA rating and further requires the FDIC to
provide a written evaluation of an institution’s CRA performance utilizing a four-tiered descriptive rating system.
While our latest rating in Florida and Ohio, two of the markets we entered in December 2009 in connection with our
FDIC-assisted AmTrust acquisition, was “needs improvement,” the latest overall CRA rating for the Community
Bank was “Satisfactory,” as was the latest CRA rating for the Commercial Bank.
New York State Regulation
The Community Bank and the Commercial Bank are also subject to provisions of the New York State
Banking Law that impose continuing and affirmative obligations upon a banking institution organized in New York
State to serve the credit needs of its local community (the “NYCRA”). Such obligations are substantially similar to
those imposed by the CRA. The NYCRA requires the NYDFS to make a periodic written assessment of an
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institution’s compliance with the NYCRA, utilizing a four-tiered rating system, and to make such assessment
available to the public. The NYCRA also requires the Superintendent of the NYDFS (the “Superintendent”) to
consider the NYCRA rating when reviewing an application to engage in certain transactions, including mergers,
asset purchases, and the establishment of branch offices or ATMs, and provides that such assessment may serve as a
basis for the denial of any such application. The latest NYCRA rating received by the Community Bank was
“outstanding” and the latest rating received by the Commercial Bank was “satisfactory.”
Federal Reserve System
Under FRB regulations, the Community Bank and the Commercial Bank are required to maintain reserves
against their transaction accounts (primarily NOW and regular checking accounts). The FRB regulations generally
require that reserves be maintained against aggregate transaction accounts as follows: for that portion of transaction
accounts aggregating $79.5 million or less (subject to adjustment by the FRB), the reserve requirement is 3%; for
amounts greater than $79.5 million, the reserve requirement is 10% (subject to adjustment by the FRB between 8%
and 14%). The first $12.4 million of otherwise reservable balances (subject to adjustments by the FRB) are
exempted from the reserve requirements. The Community Bank and the Commercial Bank are in compliance with
the foregoing requirements.
Federal Home Loan Bank System
The Community Bank and the Commercial Bank are members of the FHLB of New York (the “FHLB-NY”),
one of 12 regional FHLBs comprising the FHLB system. Each regional FHLB manages its customer relationships,
while the 12 FHLBs use their combined size and strength to obtain their necessary funding at the lowest possible
cost. As members of the FHLB-NY, the Community Bank and the Commercial Bank are required to acquire and
hold shares of FHLB-NY capital stock. Including $23.1 million of FHLB-Cincinnati stock acquired in the AmTrust
acquisition and $2.1 million of FHLB-San Francisco stock acquired in the Desert Hills acquisition, the Community
Bank held total FHLB stock of $458.8 million at December 31, 2012. In addition, the Commercial Bank held
FHLB-NY stock of $10.3 million at that date. FHLB stock continued to be valued at par, with no impairment loss
required, at that date.
For the fiscal years ended December 31, 2012 and 2011, dividends from the FHLBs to the Community Bank
amounted to $19.9 million and $19.5 million, respectively. Dividends from the FHLB-NY to the Commercial Bank
amounted to $387,000 and $374,000, respectively, in the corresponding years.
New York State Law
The Community Bank and the Commercial Bank derive their lending, investment, and other authority
primarily from the applicable provisions of New York State Banking Law and the regulations of the NYDFS, as
limited by FDIC regulations. Under these laws and regulations, banks, including the Community Bank and the
Commercial Bank, may invest in real estate mortgages, consumer and commercial loans, certain types of debt
securities (including certain corporate debt securities, and obligations of federal, state, and local governments and
agencies), certain types of corporate equity securities, and certain other assets. The lending powers of New York
State-chartered savings banks and commercial banks are not subject to percentage-of-assets or capital limitations,
although there are limits applicable to loans to individual borrowers.
The exercise by an FDIC-insured savings bank or commercial bank of the lending and investment powers
under New York State Banking Law is limited by FDIC regulations and other federal laws and regulations. In
particular, the applicable provisions of New York State Banking Law and regulations governing the investment
authority and activities of an FDIC-insured state-chartered savings bank and commercial bank have been effectively
limited by the FDICIA and the FDIC regulations issued pursuant thereto.
With certain limited exceptions, a New York State-chartered savings bank may not make loans or extend
credit for commercial, corporate, or business purposes (including lease financing) to a single borrower, the
aggregate amount of which would be in excess of 15% of the bank’s net worth or up to 25% for loans secured by
collateral having an ascertainable market value at least equal to the excess of such loans over the bank’s net worth.
A commercial bank is subject to similar limits on all of its loans. The Community Bank and the Commercial Bank
currently comply with all applicable loans-to-one-borrower limitations.
Under New York State Banking Law, New York State-chartered stock-form savings banks and commercial
banks may declare and pay dividends out of their net profits, unless there is an impairment of capital, but approval
of the Superintendent is required if the total of all dividends declared by the bank in a calendar year would exceed
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the total of its net profits for that year combined with its retained net profits for the preceding two years less prior
dividends paid.
New York State Banking Law gives the Superintendent authority to issue an order to a New York State-
chartered banking institution to appear and explain an apparent violation of law, to discontinue unauthorized or
unsafe practices, and to keep prescribed books and accounts. Upon a finding by the NYDFS that any director,
trustee, or officer of any banking organization has violated any law, or has continued unauthorized or unsafe
practices in conducting the business of the banking organization after having been notified by the Superintendent to
discontinue such practices, such director, trustee, or officer may be removed from office after notice and an
opportunity to be heard. The Superintendent also has authority to appoint a conservator or a receiver for a savings or
commercial bank under certain circumstances.
Interstate Branching
Federal law allows the FDIC, and New York State Banking Law allows the Superintendent, to approve an
application by a state banking institution to acquire interstate branches by merger, unless, in the case of the FDIC,
the state of the target institution has opted out of interstate branching. New York State Banking Law authorizes
savings banks and commercial banks to open and occupy de novo branches outside the state of New York. Pursuant
to the Dodd-Frank Act, the FDIC is authorized to approve a state bank’s establishment of a de novo interstate branch
if the intended host state allows de novo branching by banks chartered by that state. The Community Bank currently
maintains 51 branches in New Jersey, 26 branches in Florida, 28 branches in Ohio, and 14 branches in Arizona, in
addition to its 121 branches in New York State.
In April 2008, the Banking Regulators in New Jersey, New York, and Pennsylvania entered into a
Memorandum of Understanding (the “Interstate MOU”) to clarify their respective roles, as home and host state
regulators, regarding interstate branching activity on a regional basis pursuant to the Riegle-Neal Amendments Act
of 1997. The Interstate MOU establishes the regulatory responsibilities of the respective state banking regulators
regarding bank regulatory examinations and is intended to reduce the regulatory burden on state-chartered banks
branching within the region by eliminating duplicative host state compliance exams.
Under the Interstate MOU, the activities of branches established by the Community Bank or the Commercial
Bank in New Jersey or Pennsylvania would be governed by New York State law to the same extent that federal law
governs the activities of the branch of an out-of-state national bank in such host states. For the Community Bank and
the Commercial Bank, issues regarding whether a particular host state law is preempted are to be determined in the
first instance by the NYDFS. In the event that the NYDFS and the applicable host state regulator disagree regarding
whether a particular host state law is pre-empted, the NYDFS and the applicable host state regulator would use their
reasonable best efforts to consider all points of view and to resolve the disagreement.
Acquisition of the Holding Company
Federal Restrictions
Under the Federal Change in Bank Control Act (“CIBCA”), a notice must be submitted to the FRB if any
person (including a company), or group acting in concert, seeks to acquire 10% or more of the Company’s shares of
outstanding common stock, unless the FRB has found that the acquisition will not result in a change in control of the
Company. Under the CIBCA, the FRB generally has 60 days within which to act on such notices, taking into
consideration certain factors, including the financial and managerial resources of the acquirer; the convenience and
needs of the communities served by the Company, the Community Bank, and the Commercial Bank; and the anti-
trust effects of the acquisition. Under the BHCA, any company would be required to obtain approval from the FRB
before it may obtain “control” of the Company within the meaning of the BHCA. Control generally is defined to
mean the ownership or power to vote 25% or more of any class of voting securities of the Company or the ability to
control in any manner the election of a majority of the Company’s directors. An existing bank holding company
would, under the BHCA, be required to obtain the FRB’s approval before acquiring more than 5% of the Company’s
voting stock. Please see “Holding Company Regulation” earlier in this report.
New York State Change in Control Restrictions
In addition to the CIBCA and the BHCA, New York State Banking Law generally requires prior approval of
the New York State Banking Board before any action is taken that causes any company to acquire direct or indirect
control of a banking institution which is organized in New York.
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Federal Securities Law
The Company’s common stock and certain other securities listed on the cover page of this report are registered
with the SEC under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The Company is
subject to the information and proxy solicitation requirements, insider trading restrictions, and other requirements
under the Exchange Act.
Registration of the shares of the common stock that were issued in the Community Bank’s conversion from
mutual to stock form under the Securities Act of 1933, as amended (the “Securities Act”), does not cover the resale
of such shares. Shares of the common stock purchased by persons who are not affiliates of the Company may be
resold without registration. Shares purchased by an affiliate of the Company will be subject to the resale restrictions
of Rule 144 under the Securities Act. If the Company meets the current public information requirements of Rule 144
under the Securities Act, each affiliate of the Company who complies with the other conditions of Rule 144
(including those that require the affiliate’s sale to be aggregated with those of certain other persons) would be able to
sell in the public market, without registration, a number of shares not to exceed in any three-month period the
greater of (i) 1% of the outstanding shares of the Company, or (ii) the average weekly volume of trading in such
shares during the preceding four calendar weeks. Provision may be made by the Company in the future to permit
affiliates to have their shares registered for sale under the Securities Act under certain circumstances.
Consumer Protection Regulations
The retail activities of banks, including lending and the gathering of deposits, are subject to a variety of
statutes and regulations designed to protect consumers. Interest and other charges collected or contracted for by
banks are subject to state usury laws and federal laws concerning interest rates. Loan operations, including our
mortgage banking business, are also subject to federal laws applicable to credit transactions, such as:
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The federal Truth-In-Lending Act and Regulation Z issued by the FRB, governing disclosures of credit
terms to consumer borrowers;
The Home Mortgage Disclosure Act and Regulation C issued by the FRB, requiring financial institutions to
provide information to enable the public and public officials to determine whether a financial institution is
fulfilling its obligation to help meet the housing needs of the community it serves;
The Equal Credit Opportunity Act and Regulation B issued by the FRB, prohibiting discrimination on the
basis of race, creed, or other prohibited factors in extending credit;
The Fair Credit Reporting Act and Regulation V issued by the FRB, governing the use and provision of
information to consumer reporting agencies;
The Fair Debt Collection Act, governing the manner in which consumer debts may be collected by
collection agencies; and
The guidance of the various federal agencies charged with the responsibility of implementing such federal
laws.
Deposit operations also are subject to:
The Truth in Savings Act and Regulation DD issued by the FRB, which requires disclosure of deposit
terms to consumers;
Regulation CC issued by the FRB, which relates to the availability of deposit funds to consumers;
The Right to Financial Privacy Act, which imposes a duty to maintain the confidentiality of consumer
financial records and prescribes procedures for complying with administrative subpoenas of financial
records; and
The Electronic Funds Transfer Act and Regulation E issued by the FRB, which governs automatic deposits
to and withdrawals from deposit accounts and customers’ rights and liabilities arising from the use of
automated teller machines and other electronic banking services.
In addition, the Banks and their subsidiaries may also be subject to certain state laws and regulations designed
to protect consumers.
Many of the foregoing laws and regulations are subject to change resulting from the provisions in the Dodd-
Frank Act, which in many cases calls for revisions to implementing regulations. In addition, oversight
responsibilities of these and other consumer protection laws and regulations will, in large measure, transfer from the
26
Banks’ primary regulators to the CFPB. We cannot predict the effect that being regulated by the CFPB, or any new
or revised regulations that may result from its establishment, will have on our businesses.
Consumer Financial Protection Bureau
Created under the Dodd-Frank Act, and given extensive implementation and enforcement powers, the CFPB
has broad rulemaking authority for a wide range of consumer financial laws that apply to all banks, including,
among other things, the authority to prohibit “unfair, deceptive, or abusive” acts and practices. Abusive acts or
practices are defined as those that (1) materially interfere with a consumer’s ability to understand a term or condition
of a consumer financial product or service, or (2) take unreasonable advantage of a consumer’s (a) lack of financial
savvy, (b) inability to protect himself in the selection or use of consumer financial products or services, or
(c) reasonable reliance on a covered entity to act in the consumer’s interests. The CFPB has the authority to
investigate possible violations of federal consumer financial law, hold hearings, and commence civil litigation. The
CFPB can issue cease-and-desist orders against banks and other entities that violate consumer financial laws. The
CFPB may also institute a civil action against an entity in violation of federal consumer financial law in order to
impose a civil penalty or an injunction. The CFPB has examination and enforcement authority over all banks with
more than $10 billion in assets, as well as their affiliates.
Enterprise Risk Management
The Company’s Board of Directors and Senior Management are actively engaged in the process of overseeing
the Company’s efforts to identify, measure, and mitigate risk. In connection with its efforts to control those risks
with the potential to adversely impact its business, the Company uses the COSO Enterprise Risk Management—
Integrated Framework, which is applied at all levels, from the development of the Enterprise Risk Management
(“ERM”) Program to the tactical operations of the front-line business team. The framework has eight key elements:
Internal Environment
The Company recognizes that employees, their individual attributes, including integrity, ethical values, and
competence, along with the environment in which they operate, are all critical to setting a proper internal
environment.
Objective Setting
The ERM Program of the Company ensures that management has in place a process to set objectives and that
such objectives support and align with the Company’s mission.
Risk Identification
The Company’s ERM Program focuses on recognizing and identifying existing risks to its core objectives and
also those risks that may arise from time to time from new business initiatives or from changes to its size,
businesses, structure, personnel, or other strategic interests.
Risk Measurement
The Company recognizes that accurate and timely measurement of risks is a critical component of effective
risk management. This element takes into account inherent risks (risks before controls are applied), residual risks
(the levels of risk remaining after controls are applied), and mitigating factors (e.g., insurance).
Risk Control
The Company establishes and communicates limits through policies, standards, and/or procedures that define
responsibility and authority. These control limits are meaningful management tools that can be adjusted and
authorize exceptions when warranted if conditions or risk tolerances change.
Risk Monitoring
The Company monitors risk levels to ensure timely review of risk positions and exceptions. Reports are
produced with such frequency and information as management deems to be warranted. These reports are distributed
to appropriate individuals to ensure action, when needed.
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Risk Response
Management addresses cases where actual risk levels are approaching or exceeding established limits, and
considers alternative risk response options (taking into account appropriate cost/benefit analyses) in order to reduce
residual risk to desired risk tolerances.
Information and Communications
Relevant information is communicated in appropriate form and time frame that enable employees to carry out
their responsibilities. Effective communication occurs in a broader sense, flowing down, across, and up the
Company, including Executive Management and, if appropriate, the applicable Board of Directors, and other
relevant parties across the Company
Risk Management Roles and Responsibilities
Our ERM Program is driven by our belief that the proper management of risk must start at, and be driven by,
the highest organizational level. The following groups/individuals are responsible for ensuring the successful
achievement of our ERM Program:
Board of Directors
Our Board of Directors is responsible for the approval and oversight of the execution of the ERM Program;
setting and revising the Company’s risk appetite; and reviewing risk indicators against established risk limits,
including those identified in the reports presented by the Chief Risk Officer.
Risk Assessment Committee
The Risk Assessment Committee of the Board is responsible for assisting the Board in its oversight of the
Company’s risk management framework, including the policies and procedures used to manage the following
risks: credit, interest rate, liquidity, market, operational, legal/compliance, loss share compliance, reputational, and
strategic.
Chief Risk Officer
The Chief Risk Officer ensures that the Company’s overall ERM Policy is implemented across the Company
and oversees the implementation of the ERM Program. This responsibility includes ensuring that each Business
Process Owner’s self-risk assessment is completed and that recommendations regarding their risk scores are made;
aggregating and categorizing risks; and reporting the Company’s risk profile and risk indicators to Senior
Management, the Risk Assessment Committee of the Board of Directors, and the Board of Directors itself. The
Chief Risk Officer has oversight over all risk categories and, in this capacity, attends various management
committee and Board of Directors’ meetings wherein risk taking activities are vetted. The Chief Risk Officer
reviews changes to key Board-level policies prior to submission to the Board for approval, and reviews changes to
key financial models prior to moving the change into production. The Chief Risk Officer reports directly to the Risk
Assessment Committee of the Board of Directors.
Executive Oversight Group
The Executive Oversight Group (“EOG”) operates within the Office of the Chief Executive Officer. Its
members are designated by the Chief Executive Officer or Chief Operating Officer based on their knowledge and
understanding of the Company’s business model and their expertise in each of the business areas each of them
oversees. The members of the EOG are responsible for engaging in discussions with each Business Process Owner
regarding new business objectives, material risks that currently exist or may be emerging in the future, and certain
risk mitigants. Like the Chief Risk Officer, the EOG Officer reports to the Risk Assessment Committee of the
Board.
Senior Management
Senior Management (defined as the Chief Executive Officer, the Chief Operating Officer, and any other
Senior Executive Vice President, or all or any group of them acting collectively) ensures that a risk management
process with adequate resources is effectively implemented; that the Company’s corporate structure supports risk
management goals; and that a risk management process is integrated into the corporate culture.
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Business Process Owners
Business Process Owners are officers of the Company who have primary responsibility for the day-to-day
operations of their respective business units. Each Business Process Owner is responsible for ensuring that proper
controls are in place to prudently mitigate risk, and for performing periodic self-assessments of risks and controls.
Internal Audit
Internal Audit is responsible for validating the controls identified by Business Process Owners when
performing internal audits of their respective areas of responsibility. In addition, Internal Audit is responsible for
communicating its audit findings to the Chief Risk Officer and the ERM Department, who then revisit the self-
assessment performed by each Business Process Owner.
ITEM 1A. RISK FACTORS
There are various risks and uncertainties that are inherent in our business. Following is a discussion of the
material risks and uncertainties that could have a material adverse impact on our financial condition and results of
operations, and that could cause the value of our common stock to decline significantly. Additional risks that are not
currently known to us, or that we currently believe to be immaterial, may also have a material effect on our financial
condition and results of operations. This report is qualified in its entirety by those risk factors.
Changes in interest rates could reduce our net interest income and mortgage banking income, and negatively
impact the value of our loans, securities, and other assets. This could have a material adverse affect on our cash
flows, financial condition, results of operations, and capital.
Our primary source of income is net interest income, which is the difference between the interest income
generated by our interest-earning assets (consisting primarily of loans and, to a lesser extent, securities) and the
interest expense produced by our interest-bearing liabilities (consisting primarily of deposits and wholesale
borrowings).
The cost of our deposits and short-term wholesale borrowings is largely based on short-term interest rates, the
level of which is driven by the Federal Open Market Committee of the Federal Reserve Board of Governors (the
“FRB”). However, the yields generated by our loans and securities are typically driven by intermediate-term (e.g.,
five-year) interest rates, which are set by the market and generally vary from day to day. The level of net interest
income is therefore influenced by movements in such interest rates, and the pace at which such movements occur. If
the interest rates on our interest-bearing liabilities increase at a faster pace than the interest rates on our interest-
earning assets, the result could be a reduction in net interest income and with it, a reduction in our earnings. Our net
interest income and earnings would be similarly impacted were the interest rates on our interest-earning assets to
decline more quickly than the interest rates on our interest-bearing liabilities.
In addition, such changes in interest rates could affect our ability to originate loans and attract and retain
deposits; the fair values of our securities and other financial assets; the fair values of our liabilities; and the average
lives of our loan and securities portfolios.
Changes in interest rates could also have an effect on loan refinancing activity which, in turn, would impact
the amount of prepayment penalty income we receive on our multi-family and CRE loans, and the amount of
mortgage banking income we generate as a result of originating and servicing one-to-four family loans for sale.
Because prepayment penalties are recorded as interest income, the extent to which they increase or decrease during
any given period could have a significant impact on the level of net interest income and net income we generate
during that time.
In addition, changes in interest rates could have an effect on the slope of the yield curve. If the yield curve
were to invert or become flat, our net interest income and net interest margin could contract, adversely affecting our
net income and cash flows and the value of our assets.
A decline in the quality of our assets could result in higher losses and the need to set aside higher loan loss
provisions, thus reducing our earnings and our stockholders’ equity.
The inability of our borrowers to repay their loans in accordance with their terms would likely necessitate an
increase in our provision for loan losses and therefore reduce our earnings.
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The loans we originate for investment are primarily multi-family loans and, to a lesser extent, CRE loans.
Such loans are generally larger, and have higher risk-adjusted returns and shorter maturities, than one-to-four family
mortgage loans. Our credit risk would ordinarily be expected to increase with the growth of these loan portfolios.
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 our
borrowers to repay these loans may be impacted by adverse conditions in the local real estate market and the local
economy. While we seek to minimize these risks through our underwriting policies, which generally require that
such loans be qualified on the basis of the collateral property’s cash flows, appraised value, and debt service
coverage ratio, among other factors, there can be no assurance that our underwriting policies will protect us from
credit-related losses or delinquencies.
We also originate ADC and C&I loans for investment, although to a far lesser degree than we originate multi-
family and CRE loans. ADC financing typically involves a greater degree of credit risk than longer-term financing
on multi-family and CRE properties. Risk of loss on an ADC loan largely depends upon the accuracy of the initial
estimate of the property’s value at completion of construction or development, compared to the estimated costs
(including interest) of construction. If the estimate of value proves to be inaccurate, the loan may be under-secured.
While we seek to minimize these risks by maintaining consistent lending policies and procedures, and rigorous
underwriting standards, an error in such estimates, among other factors, could have a material adverse effect on the
quality of our ADC loan portfolio, thereby resulting in material losses or delinquencies.
We seek to minimize the risks involved in C&I lending by underwriting such loans on the basis of the cash
flows produced by the business; by requiring that such loans be collateralized by various business assets, including
inventory, equipment, and accounts receivable, among others; and by requiring personal guarantees. However, the
capacity of a borrower to repay a C&I loan is substantially dependent on the degree to which his or her business is
successful. In addition, the collateral underlying such loans may depreciate over time, may not be conducive to
appraisal, or may fluctuate in value, based upon the results of operations of the business.
Although our losses have been comparatively limited, even during periods of economic weakness in our
markets, we cannot guarantee that this record will be maintained in future periods. The ability of our borrowers to
repay their loans could be adversely impacted by a decline in real estate values and/or an increase in unemployment,
which not only could result in our experiencing an increase in charge-offs, but also could necessitate our further
increasing our provision for losses on non-covered loans. Either of these events would have an adverse impact on
our net income.
Sustained or increased economic weakness in the New York metropolitan region, where the majority of the
properties collateralizing our multi-family and commercial real estate loans are located, could have an adverse
impact on our financial condition and results of operations.
Unlike larger national or superregional banks that serve a broader and more diverse geographic region, our
business depends significantly on general economic conditions in the New York metropolitan region, where the
majority of the buildings and properties securing the loans we originate for investment, and the businesses of the
customers to whom we make C&I loans, are located.
Accordingly, the ability of our borrowers to repay their loans, and the value of the collateral securing such
loans, may be significantly affected by economic conditions in this region or by changes in the local real estate
market. A significant decline in general economic conditions caused by inflation, recession, unemployment, acts of
terrorism, extreme weather, or other factors beyond our control, could therefore have an adverse effect on our
financial condition and results of operations. In addition, because multi-family and CRE loans represent the majority
of the loans in our portfolio, a decline in tenant occupancy or rents due to such factors, or for other reasons, could
adversely impact the ability of our borrowers to repay their loans on a timely basis, which could have a negative
impact on our net income.
If our covered loan portfolio experiences greater losses than we expected at the time of their acquisition, or
experiences losses following the expiration of the FDIC loss sharing agreements to which it is subject, or if those
agreements are not properly managed, our financial condition and results of operations could be adversely
affected.
The credit risk associated with the loans and OREO we acquired in our AmTrust and Desert Hills acquisitions
is largely mitigated by our loss sharing agreements with the FDIC. Nonetheless, these assets are not without risk.
Although the loans and OREO we acquired were initially accounted for at fair value, there is no assurance that they
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will not become impaired, which could result in their being charged off. Fluctuations in national, regional, and local
economic conditions may increase the level of charge-offs on the loans we acquired in these transactions, and would
therefore have an adverse impact on our net income. Such fluctuations are not predictable, cannot be controlled, and
may have a material adverse impact on our operations and financial condition even if other favorable events occur.
In addition, although our loss sharing agreements call for the FDIC to bear a significant portion of any losses
related to the acquired loan portfolios, we are not protected from all losses resulting from charge-offs with respect to
the acquired loans. Also, the loss sharing agreements have limited terms. Charge-offs we experience on covered
loans after the terms of the loss sharing agreements end may not be fully recoverable and this, too, could have an
adverse impact on our net income.
Furthermore, the FDIC has the right to refuse or delay payment for losses on our covered loans if the loss
sharing agreements are not managed in accordance with their terms.
Our allowance for losses on non-covered loans might not be sufficient to cover our actual losses, which would
adversely impact our financial condition and results of operations.
In addition to mitigating credit risk through our underwriting processes, we attempt to mitigate such risk
through the establishment of an allowance for losses on non-covered loans. The process of determining whether or
not this allowance is sufficient to cover potential non-covered loan losses is based on our evaluation of inherent
losses in the held-for-investment loan portfolio, which requires that management make certain assumptions,
estimates, and judgments regarding several factors, including the current and historical performance of the portfolio;
its inherent risk characteristics; the level of non-performing non-covered loans and charge-offs; delinquency levels
and trends; local economic and market conditions; declines in real estate values; and the levels of unemployment
and vacancy rates.
If our assumptions, estimates, and judgments regarding such matters prove to be incorrect, our allowance for
losses on such loans might not be sufficient, and additional non-covered loan loss provisions might need to be made.
Depending on the amount of such loan loss provisions, the adverse impact on our earnings could be material.
In addition, as we continue to grow our held-for-investment loan portfolio, it may be necessary to increase the
allowance for losses on such loans by making additional provisions, which also could adversely impact our
operating results. Furthermore, bank regulators may require us to make a provision for non-covered loan losses or
otherwise recognize further loan charge-offs following their periodic review of our held-for-investment loan
portfolio, our underwriting procedures, and our allowance for losses on such loans. Any increase in the non-covered
loan loss allowance or loan charge-offs as required by such regulatory authorities could have a material adverse
effect on our financial condition and results of operations.
For more information regarding our allowance for losses on non-covered loans in recent periods, please see
“Allowance for Losses on Non-Covered Loans” in the discussion of “Critical Accounting Policies” and the
discussion of “Asset Quality” that appear in Item 7, “Management’s Discussion and Analysis of Financial Condition
and Results of Operations” later in this report.
Failure to maintain an adequate level of liquidity could result in an inability to fulfill our financial obligations
and could subject us to material reputation and regulatory risk.
“Liquidity” refers to our ability to generate sufficient cash flows to support our operations and to fulfill our
obligations, including commitments to originate loans, to repay our wholesale borrowings and other liabilities, and
to satisfy the withdrawal of deposits by our customers.
Our primary sources of liquidity are deposits, including those we gather organically through our branch
network, those we acquire in connection with acquisitions, and the brokered deposits we accept; borrowed funds,
primarily in the form of wholesale borrowings from the FHLB and various Wall Street brokerage firms; the cash
flows generated through the repayment and sale of loans; and the cash flows generated through the repayment and
sale of securities. In addition, and depending on current market conditions, we have the ability to access the capital
markets from time to time.
Deposit flows, calls of investment securities and wholesale borrowings, and the prepayment of loans and
mortgage-related securities are strongly influenced by such external factors as the direction of interest rates, whether
actual or perceived; local and national economic conditions; and competition for deposits and loans in the markets
we serve. Furthermore, changes to the FHLB’s underwriting guidelines for wholesale borrowings or lending policies
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may limit or restrict our ability to borrow, and could therefore have a significant adverse impact on our liquidity. In
addition, replacing funds in the event of large-scale withdrawals of brokered deposits could require us to pay
significantly higher interest rates on retail deposits or other wholesale funding sources, which would have an adverse
impact on our net interest income and net income. A decline in available funding could adversely impact our ability
to originate loans, invest in securities, and meet our expenses, or to fulfill such obligations as repaying our
borrowings or meeting deposit withdrawal demands.
Inability to fulfill current minimum capital requirements, or the higher minimum capital requirements that have
been proposed by the FRB, could limit our ability to conduct or expand our business, pay a dividend, or result in
termination of our FDIC deposit insurance, and thus impact our financial condition, our results of operations,
and the market value of our stock.
We are subject to the comprehensive, consolidated supervision and regulation set forth by the FRB. Such
regulation includes, among other matters, the level of leverage and risk-based capital ratios we are required to
maintain. Our capital ratios can change, depending on general economic conditions, our financial condition, our risk
profile, and our plans for growth. Compliance with the FRB’s capital requirements may limit our ability to engage in
operations that require the intensive use of capital and therefore could adversely affect our ability to maintain our
current level of business or to expand.
Furthermore, it is possible that future regulatory changes could result in more stringent capital requirements
including, among other things, an increase in the levels of regulatory capital we are required to maintain, changes in
the way regulatory capital is calculated, and increases in liquidity requirements, any and all of which could
adversely affect our business and our ability to expand. For example, the implementation of certain regulatory
changes under the Dodd-Frank Act resulted in the disqualification of previously issued and outstanding trust
preferred securities as Tier 1 capital over a three-year period beginning in 2013. Any additional requirements to
increase our capital ratios or liquidity could have a material adverse effect on our financial condition, as this might
necessitate our liquidating certain assets, perhaps on terms that are unfavorable to us or that are contrary to our
business plans. Such a requirement could also compel us to issue additional securities, thus diluting the value of our
common stock.
In addition, failure to meet the established capital requirements could result in the FRB placing limitations or
conditions on our activities and further restricting the commencement of new activities. The failure to meet
applicable capital guidelines could subject us to a variety of enforcement remedies available to the federal regulatory
authorities, including limiting our ability to pay dividends; issuing a directive to increase our capital; and
terminating our FDIC deposit insurance.
A decline in economic conditions could adversely affect the value of the securities in which we invest.
Although economic and real estate conditions improved in 2012, and although we have taken, and continue to
take, steps to reduce our exposure to the risks that stem from such conditions, we nonetheless could be impacted by
them to the degree that they affect the loans we originate, the securities we invest in, and our portfolios of covered
and non-covered loans.
Declines in the value of our investment securities could result in our recording losses on the other-than-
temporary impairment (“OTTI”) of securities, which would reduce our earnings and, therefore, our capital. Declines
in real estate values and home sales, and an increase in the financial stress on borrowers stemming from high
unemployment, among other economic conditions, could have an adverse effect on our borrowers or their
customers, which could adversely impact the repayment of the loans we have made. Further deterioration in
economic conditions also could subject us and our industry to increased regulatory scrutiny and could result in an
increase in loan delinquencies, an increase in problem assets and foreclosures, and a decline in the value of the
collateral for our loans, which could reduce our customers’ borrowing power. Deterioration in local economic
conditions could drive the level of loan losses beyond the level we have provided for in our loan loss allowances;
this, in turn, could necessitate an increase in our provisions for loan losses, which would reduce our earnings and
capital. Additionally, continued economic weakness could reduce the demand for our products and services, which
would adversely impact our liquidity and the revenues we produce.
Extreme competition for loans and deposits could adversely affect our ability to expand our business and
therefore could adversely affect our financial condition and results of operations.
We face significant competition for loans and deposits from other banks and financial institutions, both within
and beyond our local markets. We compete with commercial banks, savings banks, credit unions, and investment
banks for deposits, and with the same financial institutions and others (including mortgage brokers, finance
32
companies, mutual funds, insurance companies, and brokerage houses) for loans. We also compete with companies
that solicit loans and deposits over the Internet.
Because our profitability stems from our ability to attract deposits and originate loans, our continued ability to
compete for depositors and borrowers is critical to our success. Our success as a competitor depends on a number of
factors, including our ability to develop, maintain, and build long-term relationships with our customers by
providing them with convenience, in the form of multiple branch locations and extended hours of service; access, in
the form of alternative delivery channels, such as online banking, banking by phone, and ATMs; a broad and diverse
selection of products and services; interest rates and service fees that compare favorably with those of our
competitors; and skilled and knowledgeable personnel to assist our customers with their financial needs. External
factors that may impact our ability to compete include changes in local economic conditions and real estate values,
changes in interest rates, and the consolidation of banks and thrifts within our marketplace.
In addition, our mortgage banking operation competes nationally with other major banks and mortgage
brokers that also originate, aggregate, sell, and service one-to-four family loans.
The occurrence of any failure, breach, or interruption in service involving our systems or those of our service
providers could damage our reputation, cause losses, increase our expenses, and result in a loss of customers, an
increase in regulatory scrutiny, or expose us to civil litigation and possibly financial liability, any of which could
adversely impact our financial condition, results of operations, and the market price of our stock.
Communications and information systems are essential to the conduct of our business, as we use such systems
to manage our customer relationships, our general ledger, our deposits, and our loans. Our operations rely on the
secure processing, storage, and transmission of confidential and other information in our computer systems and
networks. Although we take protective measures and endeavor to modify them as circumstances warrant, the
security of our computer systems, software, and networks may be vulnerable to breaches, unauthorized access,
misuse, computer viruses, or other malicious code and cyber attacks that could have a security impact.
In addition, breaches of security may occur through intentional or unintentional acts by those having
authorized or unauthorized access to our confidential or other information or the confidential or other information of
our customers, clients, or counterparties. If one or more of such events were to occur, the confidential and other
information processed and stored in, and transmitted through, our computer systems and networks could potentially
be jeopardized, or could otherwise cause interruptions or malfunctions in our operations or the operations of our
customers, clients, or counterparties. This could cause us significant reputational damage or result in our
experiencing significant losses.
Furthermore, we may be required to expend significant additional resources to modify our protective measures
or to investigate and remediate vulnerabilities or other exposures arising from operational and security risks. We
also may be subject to litigation and financial losses that are either not insured against or not fully covered through
any insurance we maintain.
In addition, we routinely transmit and receive personal, confidential, and proprietary information by e-mail
and other electronic means. We have discussed and worked with our customers, clients, and counterparties to
develop secure transmission capabilities, but we do not have, and may be unable to put in place, secure capabilities
with all of these constituents, and we may not be able to ensure that these third parties have appropriate controls in
place to protect the confidentiality of such information.
While we have established policies and procedures to prevent or limit the impact of systems failures and
interruptions, there can be no assurance that such events will not occur or that they will be adequately addressed if
they do. In addition, we outsource certain aspects of our data processing to certain third-party providers. If our third-
party providers encounter difficulties, or if we have difficulty in communicating with them, our ability to adequately
process and account for customer transactions could be affected, and our business operations could be adversely
impacted. Threats to information security also exist in the processing of customer information through various other
vendors and their personnel.
Failure to keep pace with technological changes could have a material adverse impact on our ability to compete
for loans and deposits, and therefore on our financial condition and results of operations.
Financial products and services have become increasingly technology-driven. To some degree, our ability to
meet the needs of our customers competitively, and in a cost-efficient manner, is dependent on our ability to keep
pace with technological advances and to invest in new technology as it becomes available. Many of our competitors
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have greater resources to invest in technology than we do and may be better equipped to market new technology-
driven products and services.
The inability to grow through acquisitions, or to realize the anticipated benefits of any acquisition we do engage
in, could adversely affect our ability to compete with other financial institutions and therefore our financial
condition and results of operations, perhaps materially.
Mergers and acquisitions have contributed significantly to our growth in the past, and remain a component of
our business model. Accordingly, it is possible that we could acquire other financial institutions, financial service
providers, or branches of banks in the future, either through negotiated transactions or FDIC-assisted acquisitions.
However, our ability to engage in future mergers and acquisitions depends on various factors, including:
(1) our ability to identify suitable merger partners and acquisition opportunities; (2) our ability to finance and
complete negotiated transactions on acceptable terms and at acceptable prices; (3) our ability to receive the
necessary regulatory approvals; and (4) when, required, our ability to receive the necessary shareholder approvals.
Our inability to engage in an acquisition or merger for any of these reasons could have an adverse impact on
our financial condition and results of operations. As acquisitions have been a significant source of deposits, the
inability to complete a business combination could require that we increase the interest rates we pay on deposits in
order to attract such funding through our current branch network, or that we increase our use of wholesale funds.
Increasing our cost of funds could adversely impact our net interest income, and therefore our results of operations.
Furthermore, the funding we obtain in acquisitions is generally used to fund our loan production or to reduce our
higher funding costs. The absence of an acquisition could therefore impact our ability to meet our loan demand.
Furthermore, mergers and acquisitions involve a number of risks and challenges, including:
(cid:120) Our ability to integrate the branches and operations we acquire, and the internal controls and regulatory
functions into our current operations;
(cid:120) Our ability to limit the outflow of deposits held by our new customers in the acquired branches and to
successfully retain and manage the loans we acquire;
(cid:120) Our ability to attract new deposits, and to generate new interest-earning assets, in geographic areas we have
not previously served;
(cid:120) Our success in deploying any cash received in a transaction into assets bearing sufficiently high yields
without incurring unacceptable credit or interest rate risk;
(cid:120) Our ability to control the incremental non-interest expense from the acquired branches in a manner that
enables us to maintain a favorable overall efficiency ratio;
(cid:120) Our ability to retain and attract the appropriate personnel to staff the acquired branches and conduct any
acquired operations;
(cid:120) Our ability to earn acceptable levels of interest and non-interest income, including fee income, from the
acquired branches;
(cid:120)
The diversion of management’s attention from existing operations;
(cid:120) Our ability to address an increase in working capital requirements; and
(cid:120)
Limitations on our ability to successfully reposition the post-merger balance sheet, when deemed
appropriate.
Additionally, no assurance can be given that the operation of acquired branches would not adversely affect our
existing profitability; that we would be able to achieve results in the future similar to those achieved by our existing
banking business; that we would be able to compete effectively in the market areas served by acquired branches; or
that we would be able to manage any growth resulting from a transaction effectively. In particular, our ability to
compete effectively in new markets is dependent on our ability to understand those markets and their competitive
dynamics, and our ability to retain certain key employees from the acquired institution who know those markets
better than we do.
Furthermore, the acquisition of assets and liabilities of financial institutions in FDIC-sponsored or assisted
transactions involves risks similar to those faced when acquiring existing financial institutions, even though the
FDIC might provide assistance to mitigate certain risks, e.g., by entering into loss sharing arrangements. However,
because such acquisitions are structured in a manner that does not allow the time normally associated with
34
evaluating and preparing for the integration of an acquired institution, we face the additional risk that the anticipated
benefits of such an acquisition may not be realized fully or at all, or within the time period expected.
If we continue to grow and our consolidated assets reach or exceed $50 billion, we will be subject to stricter
prudential standards required by the Dodd-Frank Act for Large Bank Holding Companies.
Pursuant to the requirements of the Dodd-Frank Act, the FRB has proposed rules applying stricter prudential
standards to bank holding companies having $50 billion or more in total consolidated assets. The stricter prudential
standards include risk-based capital and leverage requirements, liquidity requirements, risk-management
requirements, annual stress testing conducted by the FRB, credit limits, dividend limits, and early remediation
regimes. In addition, the Dodd-Frank Act requires the FRB to adopt rules regarding credit exposure reporting by
bank holding companies with consolidated assets of $50 billion or more. The Dodd-Frank Act permits, but does not
require, the FRB to apply heightened prudential standards in a number of other areas, including short-term debt
limits and enhanced public disclosure.
With consolidated assets of $44.1 billion at December 31, 2012, it is likely that we will reach or exceed the
$50.0 billion threshold, whether through organic growth or through continuation of our growth-through-acquisition
strategy. When this occurs, we will become subject to the stricter prudential standards required by the Dodd-Frank
Act.
Our results of operations could be adversely affected by further changes in bank regulation, or by our inability to
comply with certain existing laws, rules, and regulations governing our industry.
We are subject to regulation, supervision, and examination by the following entities: (1) the NYDFS, the
chartering authority for both the Community Bank and the Commercial Bank; (2) the FDIC, as the insurer of the
Banks’ deposits; (3) the Federal Reserve Bank of New York, in accordance with objectives and standards of the U.S.
Federal Reserve System; and (4) the CFPB, which was established in 2011 under the Dodd-Frank Act and given
broad authority to regulate financial service providers and financial products.
Such regulation and supervision governs the activities in which a bank holding company and its banking
subsidiaries may engage, and is intended primarily for the protection of the DIF, the banking system in general, and
customers, and not for the benefit of a company’s stockholders. These regulatory authorities have extensive
discretion in connection with their supervisory and enforcement activities, including with respect to the imposition
of restrictions on the operation of a bank or a bank holding company, the imposition of significant fines, the ability
to delay or deny merger or other regulatory applications, the classification of assets by a bank, and the adequacy of a
bank’s allowance for loan losses, among other matters. Any failure to comply with, or any change in, such
regulation and supervision, or change in regulation or enforcement by such authorities, whether in the form of
policy, regulations, legislation, rules, orders, enforcement actions, or decisions, could have a material impact on the
Company, our subsidiary banks and other affiliates, and our operations.
Our operations are also subject to extensive legislation enacted, and regulation implemented, by other federal,
state, and local governmental authorities, and to various laws and judicial and administrative decisions imposing
requirements and restrictions on part or all of our operations. While we believe that we are in compliance in all
material respects with applicable federal, state, and local laws, rules, and regulations, including those pertaining to
banking, lending, and taxation, among other matters, we may be subject to future changes in such laws, rules, and
regulations that could have a material impact on our results of operations.
For example, in addition to creating the CFPB, the Dodd-Frank Act established new standards relating to
regulatory oversight of systemically important financial institutions, derivatives transactions, asset-backed
securitization, and mortgage underwriting, and limited the revenues banks can derive from debit card interchange
fees. Extensive regulatory guidance is needed to implement and clarify many of the provisions of the Dodd-Frank
Act and, although certain U.S. agencies have begun to initiate the required administrative processes, it is still too
early in those processes to fully assess the impact of this legislation on our business, the rest of the banking industry,
and the broader financial services industry.
In addition, the Federal Reserve Bank has proposed guidance on incentive compensation at the banking
organizations it regulates, and the U.S. Department of the Treasury and the federal banking regulators have issued
statements calling for higher capital and liquidity requirements for banks. Complying with any new legislative or
regulatory requirements, and any programs established thereunder by federal and state governments to address
economic weakness, could have an adverse impact on our results of operations, our ability to fill positions with the
most qualified candidates available, and our ability to maintain our dividend.
35
Furthermore, the current Administration has announced plans to dramatically transform the role of
government in the U.S. housing market, including by winding down Fannie Mae and Freddie Mac, and by reducing
other government support to such markets. Congressional leaders have voiced similar plans for future legislation. It
is too early to determine the nature and scope of any legislation that may develop along these lines, or what roles
Fannie Mae and Freddie Mac or the private sector will play in future housing markets. However, it is possible that
legislation will be proposed over the near term that would result in the nature of GSE guarantees being considerably
limited relative to historical measurements, which could have broad adverse implications for the market and
significant implications for our business.
Our enterprise risk management framework may not be effective in mitigating the risks to which we are subject,
or in reducing the potential for losses in connection with such risks.
As a financial institution, we are subject to a number of risks, including credit, interest rate, liquidity, market,
operational, legal/compliance, loss sharing compliance, reputational, and strategic. Our ERM framework is designed
to minimize the risks to which we are subject, as well as any losses stemming from such risks. Although we seek to
identify, measure, monitor, report, and control our exposure to such risks, and employ a broad and diversified set of
risk monitoring and mitigation techniques in the process, those techniques are inherently limited because they
cannot anticipate the existence or development of risks that are currently unknown and unanticipated.
For example, recent economic conditions, heightened legislative and regulatory scrutiny of the financial
services industry, and increases in the overall complexity of our operations, among other developments, have
resulted in the creation of a variety of risks that were previously unknown and unanticipated, highlighting the
intrinsic limitations of our risk monitoring and mitigation techniques. As a result, the further development of
previously unknown or unanticipated risks may result in our incurring losses in the future that could adversely
impact our financial condition and results of operations.
Our stress testing processes rely on analytical and forecasting models that may prove to be inadequate or
inaccurate, which could adversely affect the effectiveness of our strategic planning and our ability to pursue
certain corporate goals.
The processes we use to estimate the effects of changing interest rates, real estate values, and economic
indicators such as unemployment on our financial condition and results of operations depend upon the use of
analytical and forecasting models. These models reflect assumptions that may not be accurate, particularly in times
of market stress or other unforeseen circumstances. Furthermore, even if our assumptions are accurate predictors of
future performance, the models they are based on may prove to be inadequate or inaccurate because of other flaws in
their design or implementation. If the models we use in the process of managing our interest rate and other risks
prove to be inadequate or inaccurate, we could incur increased or unexpected losses which, in turn, could adversely
affect our earnings and capital. Furthermore, the assumptions we utilize for our stress tests may not meet with
regulatory approval, which could result in our stress testing receiving a failing grade. In addition to adversely
affecting our reputation, failing our stress tests would likely preclude or delay our growth through acquisition and
would likely lead to a reduction in our quarterly cash dividends.
Our use of derivative financial instruments to mitigate the interest rate exposure that stems from our mortgage
banking business may not be effective, and may adversely affect our mortgage banking income, earnings, and
stockholders’ equity.
Our mortgage banking operation is actively engaged in the origination of one-to-four family loans for sale. In
accordance with our operating policies, we may use various types of derivative financial instruments, including
forward rate agreements, options, and other derivative transactions, to mitigate or reduce our exposure to losses from
adverse changes in interest rates in connection with this business. These activities will vary in scope based on the
types of assets held, the level and volatility of interest rates, and other changing market conditions. However, no
strategy can completely insulate us from the interest rate risks to which we are exposed, and there is no guarantee
that any strategy we implement will have the desired impact. Furthermore, although derivatives are intended to limit
losses, they may actually have an adverse impact on our earnings, which could reduce our capital and the cash
available to us for distribution to our shareholders in the form of dividends. Our derivative financial instruments also
expose us to counterparty risk, which is the risk that other parties to the instruments will not fulfill their contractual
obligations.
36
If our goodwill were determined to be impaired, it would result in a charge against earnings and thus a reduction
in our stockholders’ equity.
We test goodwill for impairment on an annual basis, or more frequently, if necessary. Quoted market prices in
active markets are the best evidence of fair value and are to be used as the basis for measuring impairment, when
available. Other acceptable valuation methods include present-value measurements based on multiples of earnings
or revenues, or similar performance measures. If we were to determine that the carrying amount of our goodwill
exceeded its implied fair value, we would be required to write down the value of the goodwill on our balance sheet,
adversely affecting our earnings as well as our capital.
If federal, state, or local tax authorities were to determine that we did not adequately provide for our taxes, our
income tax expense could be increased, adversely affecting our earnings.
The amount of income taxes we are required to pay on our earnings is based on federal and state legislation
and regulations. We provide for current and deferred taxes in our financial statements, based on our results of
operations, business activity, legal structure, interpretation of tax statutes, assessment of risk of adjustment upon
audit, and application of financial accounting standards. We may take tax return filing positions for which the final
determination of tax is uncertain. Our net income and earnings per share may be reduced if a federal, state, or local
authority assesses additional taxes that have not been provided for in our consolidated financial statements. There
can be no assurance that we will achieve our anticipated effective tax rate either due to a change in tax law, a change
in regulatory or judicial guidance, or an audit assessment that denies previously recognized tax benefits.
The inability to attract and retain key personnel could adversely impact our financial condition and results of
operations.
To a large degree, our success depends on our ability to attract and retain key personnel whose expertise,
knowledge of our markets, and years of industry experience would make them difficult to replace. Competition for
skilled leaders in our industry can be intense, and we may not be able to hire or retain the people we would like to
have working for us. The unexpected loss of services of one or more of our key personnel could have a material
adverse impact on our business, given the specialized knowledge of such personnel and the difficulty of finding
qualified replacements on a timely basis. To attract and retain personnel with the skills and knowledge to support
our business, we offer a variety of benefits that may reduce our earnings.
Damage to our reputation could significantly harm the businesses we engage in, as well as our competitive
position and prospects for growth.
Our ability to attract and retain investors, customers, clients, and employees could be adversely affected if our
reputation were damaged. Significant harm to our reputation could arise from many sources, including employee
misconduct, litigation or regulatory outcomes, failure to deliver minimum standards of service and quality,
compliance failures, unethical behavior, unintended disclosure of confidential information, and the activities of our
clients, customers, and/or counterparties. Actions by the financial services industry in general, or by certain entities
or individuals within it, also could have a significantly adverse impact on our reputation.
Our actual or perceived failure to address various issues also could give rise to reputational risk that could
significantly harm us and our business prospects, including failure to properly address operational risks. These
issues include legal and regulatory requirements; privacy; properly maintaining customer and associated personal
information; record keeping; protecting against money-laundering; sales and trading practices; ethical issues; and the
proper identification of the legal, reputational, credit, liquidity, and market risks inherent in our products and
services.
Reduction or elimination of our quarterly cash dividend could have an adverse impact on the market price of our
common stock.
Holders of our common stock are only entitled to receive such dividends as our Board of Directors may
declare out of funds available for such payments under applicable law and regulatory guidance, and although we
have historically declared cash dividends on our common stock, we are not required to do so. Furthermore, the
payment of dividends falls under federal regulations that have grown more stringent in recent years. While we pay
our quarterly cash dividend in compliance with current regulations, such regulations could change in the future. In
addition, should the Company reach or exceed the threshold for classification as a “Systemically Important Financial
Institution” (i.e., consolidated assets of $50.0 billion), we would be subject to the stricter prudential standards,
including for dividend payments, required by the Dodd-Frank Act. Any reduction of, or the elimination of, our
common stock dividend in the future could adversely affect the market price of our common stock.
37
The inability to receive dividends from our subsidiary banks could have a material adverse effect on our business,
our financial condition, and our results of operations, as well as our ability to maintain or increase the current
level of cash dividends we pay to our shareholders.
The Parent Company (i.e., the company on an unconsolidated basis) is a separate and distinct legal entity from
the Banks, and a substantial portion of the revenues the Parent Company receives consists of dividends from the
Banks. These dividends are the primary funding source for the dividends we pay on our common stock and the
interest and principal payments on our debt. Various federal and state laws and regulations limit the amount of
dividends that a bank may pay to its parent company. In addition, our right to participate in a distribution of assets
upon the liquidation or reorganization of a subsidiary may be subject to the prior claims of the subsidiary’s creditors.
If the Banks are unable to pay dividends to the Company, we might not be able to service our debt, pay our
obligations, or pay dividends on our common stock.
If we were to defer payments on our trust preferred capital debt securities or were in default under the related
indentures, we would be prohibited from paying dividends or distributions on our common stock.
The terms of our outstanding trust preferred capital debt securities prohibit us from (1) declaring or paying any
dividends or distributions on our capital stock, including our common stock; or (2) purchasing, acquiring, or making
a liquidation payment on such stock, under the following circumstances: (a) if an event of default has occurred and
is continuing under the applicable indenture; (b) if we are in default with respect to a payment under the guarantee
of the related trust preferred securities; or (c) if we have given notice of our election to defer interest payments but
the related deferral period has not yet commenced, or a deferral period is continuing. In addition, without notice to,
or consent from, the holders of our common stock, we may issue additional series of trust preferred capital debt
securities with similar terms, or enter into other financing agreements, that limit our ability to pay dividends on our
common stock.
The market price and liquidity of our common stock could be adversely affected if the economy were to weaken or
the capital markets were to experience volatility.
The market price of our common stock could be subject to significant fluctuations due to changes in sentiment
in the market regarding our operations or business prospects. Among other factors, these risks may be affected by:
(cid:120) Operating results that vary from the expectations of our management or of securities analysts and investors;
(cid:120) Developments in our business or in the financial services sector generally;
(cid:120)
Regulatory or legislative changes affecting our industry generally or our business and operations;
(cid:120) Operating and securities price performance of companies that investors consider to be comparable to us;
(cid:120)
Changes in estimates or recommendations by securities analysts or rating agencies;
(cid:120) Announcements of strategic developments, acquisitions, dispositions, financings, and other material events
by us or our competitors;
(cid:120)
(cid:120)
Changes or volatility in global financial markets and economies, general market conditions, interest or
foreign exchange rates, stock, commodity, credit, or asset valuations; and
Significant fluctuations in the capital markets.
Although the economy continued to show signs of improvement in 2012, renewed economic or market turmoil
could occur in the near or long term, which could negatively affect our business, our financial condition, and our
results of operations, as well as volatility in the price and trading volume of our common stock.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2.
PROPERTIES
Although we own certain of our branch offices as well as other buildings, the majority of our facilities are
leased under various lease and license agreements that expire at various times. (Please see Note 9, “Commitments
and Contingencies: Lease and License Commitments” in Item 8, “Financial Statements and Supplementary Data”.)
We believe that our facilities are adequate to meet our present and immediately foreseeable needs.
38
ITEM 3.
LEGAL PROCEEDINGS
The Company is involved in various legal actions arising in the ordinary course of its business. All such
actions, in the aggregate, involve amounts that are believed by management to be immaterial to the financial
condition and results of operations of the Company.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
39
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER
MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES
The common stock of New York Community Bancorp, Inc. has traded on the New York Stock Exchange (the
“NYSE”) since December 20, 2002. On November 13, 2012, we changed our NYSE trading symbol from “NYB” to
“NYCB.”
At December 31, 2012, the number of outstanding shares was 439,050,966 and the number of registered
owners was approximately 13,300. The latter figure does not include those investors whose shares were held for
them by a bank or broker at that date.
Dividends Declared per Common Share and Market Price of Common Stock
The following table sets forth the dividends declared per common share, and the intra-day high/low price
range and closing prices for the Company’s common stock, as reported by the NYSE, in each of the four quarters of
2012 and 2011:
Dividends
Declared per
Common Share
$0.25
0.25
0.25
0.25
$0.25
0.25
0.25
0.25
Market Price
High
Low
Close
$14.04
13.96
14.24
15.05
$19.23
17.55
15.67
13.65
$12.26
11.47
11.94
12.40
$17.10
14.66
11.45
11.13
$13.91
12.53
14.16
13.10
$17.26
14.99
11.90
12.37
2012
1st Quarter
2nd Quarter
3rd Quarter
4th Quarter
2011
1st Quarter
2nd Quarter
3rd Quarter
4th Quarter
Please see the discussion of “Liquidity” in Item 7, “Management’s Discussion and Analysis of Financial
Condition and Results of Operations,” for information regarding restrictions on the Company’s ability to pay
dividends.
On June 28, 2012, our President and Chief Executive Officer, Joseph R. Ficalora, submitted to the NYSE his
Annual CEO certification confirming our compliance with the NYSE’s corporate governance listing standards, as
required by Section 303A.12(a) of the NYSE Listed Company Manual.
40
Stock Performance Graph
Notwithstanding anything to the contrary set forth in any of the Company’s previous filings under the
Securities Act of 1933 or the Securities Exchange Act of 1934 that might incorporate future filings, including this
Form 10-K, in whole or in part, the following stock performance graph shall not be incorporated by reference into
any such filings.
The following graph provides a comparison of total shareholder returns on the Company’s common stock
since December 31, 2007 with the cumulative total returns of a broad market index and a peer group index. The
S&P Mid-Cap 400 Index was chosen as the broad market index in connection with the Company’s trading activity
on the NYSE. The peer group index chosen was the SNL U.S. Bank and Thrift Index, which currently is comprised
of 458 bank and thrift institutions, including the Company. The data for the indices included in the graph were
provided by SNL Financial.
Comparison of 5-Year Cumulative Total Return
Among New York Community Bancorp, Inc.,
S&P Mid-Cap 400 Index, and SNL U.S. Bank and Thrift Index
ASSUMES $100 INVESTED ON DEC. 31, 2007
ASSUMES DIVIDEND REINVESTED
FISCAL YEAR ENDING DEC. 31, 2012
12/31/2007
12/31/2008
12/31/2009
12/31/2010
12/31/2011
12/31/2012
New York Community Bancorp, Inc.
$100.00
S&P Mid-Cap 400 Index
SNL U.S. Bank and Thrift Index
$100.00
$100.00
$72.27
$63.76
$57.51
$95.78
$87.59
$56.74
$132.15
$110.93
$ 63.34
$ 92.73
$109.01
$ 49.25
$105.98
$128.50
$ 66.14
41
Share Repurchase Program
From time to time, we repurchase shares of our common stock on the open market or through privately
negotiated transactions, and hold such shares in our Treasury account. Repurchased shares may be utilized for
various corporate purposes, including, but not limited to, merger transactions and the vesting of restricted stock
awards.
During the three months ended December 31, 2012, the Company allocated $809,000 toward the repurchase
of shares of its common stock, as outlined in the following table:
(a)
Total Number
of Shares (or
Units)
Purchased (1)
(b)
Average Price
Paid per Share
(or Unit)
(c)
Total Number of
Shares (or Units)
Purchased as Part of
Publicly Announced
Plans or Programs
(d)
Maximum Number (or
Approximate Dollar
Value) of Shares (or
Units) that May Yet Be
Purchased Under the
Plans or Programs (2)
--
$ --
361
13.84
--
361
63,075
63,436
12.75
$12.75
63,075
63,436
548,338
547,977
484,902
Period
Month #1:
October 1, 2012 through
October 31, 2012
Month #2:
November 1, 2012 through
November 30, 2012
Month #3:
December 1, 2012 through
December 31, 2012
Total
(1) All shares were purchased in privately negotiated transactions.
(2) On April 20, 2004, the Board authorized the repurchase of up to an additional five million shares. Of this amount, 484,902
shares were still available for repurchase at December 31, 2012. Under said authorization, shares may be repurchased on
the open market or in privately negotiated transactions.
42
ITEM 6.
SELECTED FINANCIAL DATA
(dollars in thousands, except share data)
EARNINGS SUMMARY:
Net interest income (3)
Provision for losses on non-covered loans
Provision for losses on covered loans (4)
Non-interest income
Non-interest expense:
Operating expenses
Debt repositioning charges
Amortization of core deposit intangibles
Income tax expense (benefit)
Net income
Basic earnings per share
Diluted earnings per share
Dividends paid per common share
SELECTED RATIOS:
Return on average assets
Return on average stockholders’ equity
Average stockholders’ equity to average assets
Operating expenses to average assets
Efficiency ratio (3)
Interest rate spread (3)
Net interest margin (3)
Dividend payout ratio
BALANCE SHEET SUMMARY:
Total assets
Loans, net of allowances for loan losses
Allowance for losses on non-covered loans
Allowance for losses on covered loans (4)
Securities
Deposits
Borrowed funds
Stockholders’ equity
Common shares outstanding
Book value per share (5)
Stockholders’ equity to total assets
ASSET QUALITY RATIOS (excluding covered
assets):
Non-performing non-covered loans to total
non-covered loans
Non-performing non-covered assets to total
non-covered assets
Allowance for losses on non-covered loans to
non-performing non-covered loans
Allowance for losses on non-covered loans to
total non-covered loans
Net charge-offs to average loans (6)
ASSET QUALITY RATIOS (including covered
assets): (4)
Total non-performing loans to total loans
Total non-performing assets to total assets
Allowances for loan losses to total non-
performing loans
Allowances for loan losses to total loans
2012
$1,160,021
45,000
17,988
297,353
593,833
--
19,644
279,803
501,106
$1.13
1.13
1.00
1.18%
9.06
13.02
1.40
40.75
3.11
3.21
88.50
At or For the Years Ended December 31,
2009 (2)
2010 (1)
2011
$1,200,421
79,000
21,420
235,325
$1,179,963
91,000
11,903
337,923
$905,325
63,000
--
157,639
574,683
--
26,066
254,540
480,037
$1.09
1.09
1.00
1.17 %
8.73
13.38
1.40
40.03
3.37
3.46
91.74
546,246
--
31,266
296,454
541,017
$1.24
1.24
1.00
1.29%
10.03
12.89
1.31
35.99
3.45
3.45
80.65
384,003
--
22,812
194,503
398,646
$1.13
1.13
1.00
1.20%
9.29
12.89
1.15
36.13
2.98
3.12
88.50
2008
$675,495
7,700
--
15,529
320,818
285,369
23,343
(24,090)
77,884
$0.23
0.23
1.00
0.25%
1.86
13.41
1.03
46.43
2.25
2.48
434.78
$44,145,100
31,580,636
140,948
51,311
4,913,528
24,877,521
13,430,191
5,656,264
439,050,966
$12.88
$42,024,302
30,152,154
137,290
33,323
4,540,516
22,325,654
13,960,413
5,565,704
437,344,796
$12.73
$41,190,689
29,041,595
158,942
11,903
4,788,891
21,890,328
13,536,116
5,526,220
435,646,845
$12.69
$42,153,869
28,265,208
127,491
--
5,742,243
22,418,384
14,164,686
5,366,902
433,197,332
$12.40
$32,466,906
22,097,844
94,368
--
5,901,493
14,623,265
13,496,710
4,219,246
344,985,111
$12.25
12.81%
13.24%
13.42%
12.73%
13.00%
0.96%
1.28%
2.63%
2.47%
0.51%
0.71
53.93
0.52
0.13
1.88
1.47
33.50
0.63
1.07
42.14
0.54
0.35
2.30
1.97
25.34
0.58
1.77
25.45
0.67
0.21
3.52
2.61
17.34
0.61
1.41
22.05
0.55
0.13
2.23
1.54
20.10
0.45
0.35
83.00
0.43
0.03
0.51
0.35
83.00
0.43
(1) The Company acquired certain assets and assumed certain liabilities of Desert Hills Bank on March 26, 2010. Accordingly,
the Company’s 2010 earnings reflect combined operations from that date.
(2) The Company acquired certain assets and assumed certain liabilities of AmTrust Bank (“AmTrust”) on December 4, 2009.
Accordingly, the Company’s 2009 earnings reflect combined operations from that date.
(3) The 2008 amount/measure reflects the impact of a $39.6 million debt repositioning charge that was recorded in interest
expense.
(4) Prior to the AmTrust acquisition on December 4, 2009, the Company had no covered loans.
(5) Excludes unallocated Employee Stock Ownership Plan (“ESOP”) shares from the number of shares outstanding at
December 31, 2009 and 2008. (Please see the definition of “book value per share” in the Glossary earlier in this report.)
(6) Average loans include covered loans.
43
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
For the purpose of this discussion and analysis, the words “we,” “us,” “our,” and the “Company” are used
to refer to New York Community Bancorp, Inc. and our consolidated subsidiaries, including New York Community
Bank (the “Community Bank”) and New York Commercial Bank (the “Commercial Bank”) (collectively, the
“Banks”).
Executive Summary
In 2012, the U.S. economy showed certain signs of improvement, as the unemployment rate declined from
8.5% in December 2011 to 7.8% in December 2012. Although unemployment rates declined year-over-year in
Florida, Arizona, and Ohio—three of the five states served by our branch network—unemployment rates rose
slightly in New York and New Jersey, the other two. In New York City, where most of our branches and most of the
properties and businesses securing our held-for-investment loans are located, unemployment was 8.8% in December
2011 and 2012.
The changes in certain other local economic indices were mixed in their direction. For example, personal
bankruptcy filings throughout Metro New York fell 14.3% in the twelve months ended September 30, 2012 (the
most recent month at which such data was available at this writing), while the number of business bankruptcy filings
was essentially unchanged. In Manhattan, which is home to 35.9% of our multi-family loans and 56.3% of our
commercial real estate credits, the office vacancy rate rose to 11.2% in the fourth quarter of 2012 from 10.4% in the
year-earlier three months.
Through December 2012, average home prices rose 6.8% year-over-year throughout the nation, according to
the S&P/Case-Shiller Home Price Indices. While home prices fell 0.5% in Metro New York, home prices rose in
Greater Cleveland, Miami, and Phoenix by 2.9%, 10.6%, and 23.0%, respectively. Meanwhile, the volume of new
home sales rose nearly 20% nationwide from the volume reported for 2011, to an estimated 367,000 in 2012,
according to a U.S. Commerce Department report.
In addition, the Consumer Confidence Index® was modestly higher in 2012 than it was in 2011. An index level
of 90 or more is considered indicative of a strong economy; the Consumer Confidence Index® was 64.5 in December
2011 and 65.1 in December 2012.
Also, in 2012, the target federal funds rate was maintained by the Federal Open Market Committee (the
“FOMC”) at a range of zero to 25 basis points—the same range to which it was lowered in the fourth quarter of
2008. Market interest rates, meanwhile, declined to record lows from the already-low levels we saw in 2011,
encouraging homeowners throughout the U.S. to refinance or purchase new homes. The low level of market interest
rates also prompted an increase in the refinancing of multi-family loans in New York City, where most of our multi-
family loans are produced.
Against this backdrop, we delivered a strong financial performance. Earnings rose to $501.1 million, or $1.13
per diluted share, in 2012 from the level recorded in 2011, which was $480.0 million, or $1.09 per diluted share.
We attribute our year-over-year earnings growth to our two-pronged approach to lending: originating multi-
family loans for investment, primarily in New York City; and originating one-to-four family loans throughout the
U.S., primarily for sale.
In 2012, we originated $9.0 billion of held-for-investment loans, including $5.8 billion of loans secured by
multi-family buildings, the latter amount exceeding the year-earlier volume by $30.0 million. While our net interest
income and margin declined, as our balance sheet was replenished with lower-yielding assets, the impact was
substantially offset by an increase in income from prepayment penalties, as refinancing activity in our multi-family
lending niche surged. In 2012, prepayment penalty income contributed $120.4 million to our net interest income and
33 basis points to our net interest margin, exceeding the year-earlier measures by $33.8 million and eight basis
points, respectively. Net interest income declined $40.4 million, or 3.4%, year-over-year, to $1.2 billion, while our
margin declined 25 basis points to 3.21%.
Notwithstanding the volume of loans that prepaid during the year—including two loans to a single borrower
totaling $545.5 million, our portfolio of held for investment loans rose $1.7 billion, or 6.9%, from the balance
recorded at December 31, 2011 to $27.3 billion at December 31, 2012.
44
The decline in net interest income was more than offset by an increase in mortgage banking income, as the
decline in residential mortgage rates also prompted a surge in the production of one-to-four family loans for sale. As
more consumers refinanced or purchased new homes, the volume of one-to-four family loans produced for sale rose
$3.7 billion, or 51.9%, to $10.9 billion. During this time, the income produced by our mortgage banking business
rose $98.0 million, or 121.4%, to $178.6 million.
We also attribute the strength of our 2012 performance to the quality of our assets, which reflected substantial
improvement over the course of the year. For example, net charge-offs declined $59.3 million year-over-year, to
$41.3 million, and the ratio of net charge-offs to average loans improved to 0.13% from 0.35% . In addition, non-
performing non-covered assets totaled $290.6 million at the end of December, reflecting a year-over-year reduction
of $119.8 million, or 29.2%. The balance at December 31, 2012 represented 0.71% of total non-covered assets, an
improvement from 1.07% at the year-earlier date.
While the improvements in asset quality were partly due to the improvement in economic and market
conditions, they also reflect our ability to successfully restructure troubled assets and to dispose of certain other real
estate owned (“OREO”) without incurring a material loss. In addition, while several of the communities we serve in
New Jersey and Metro New York were hurt by Hurricane Sandy, the impact on the properties and businesses
securing our loans, and the effect on our branches, was, thankfully, negligible.
Two additional features of our 2012 performance were the growth of our deposits and the strategic reduction
of our funding costs. For example, in connection with our assumption of $2.2 billion in deposits from Aurora Bank
FSB (“Aurora Bank”) at the end of the second quarter, we received a payment of $24.0 million which was utilized to
reduce the cost of the acquired funds. The deposits we assumed were used, in part, to reduce our balance of FHLB-
NY advances and, with it, the average cost of such funds.
Another important step we took in 2012 was redeeming $69.2 million of trust preferred securities at the end of
December, and beginning the process of repositioning certain of our wholesale borrowings. In addition to the $3.5
billion of wholesale borrowings that were repositioned in late December, another $2.4 billion of such funds were
repositioned in January 2013. All told, we reduced the weighted average cost of these borrowed funds by 117 basis
points, and extended the weighted average call and maturity dates by approximately four years.
Consistent with our interest in returning value to our investors, we distributed total cash dividends of $438.5
million over the course of 2012, in the form of four quarterly dividends of $0.25 per share, or $1.00 annualized.
Stockholders’ equity nonetheless rose $90.6 million year-over-year to $5.7 billion, and tangible stockholders’ equity
rose $110.2 million to $3.2 billion at December 31, 2012. (Please see the reconciliations of our GAAP and non-
GAAP capital measures that appear on the last page of this discussion and analysis of financial condition and results
of operations).
In addition, the Company’s regulatory capital ratios each exceeded the minimum levels required, and each of
our bank subsidiaries exceeded the regulatory requirements for classification as “well capitalized” banks.
Recent Events
On January 29, 2013, the Board of Directors declared a quarterly cash dividend of $0.25 per share, payable on
February 22, 2013 to shareholders of record at the close of business on February 11, 2013.
Critical Accounting Policies
We consider certain accounting policies to be critically important to the portrayal of our financial condition
and results of operations, since they require management to make complex or subjective judgments, some of which
may relate to matters that are inherently uncertain. The inherent sensitivity of our consolidated financial statements
to these critical accounting policies, and the judgments, estimates, and assumptions used therein, could have a
material impact on our financial condition or results of operations.
We have identified the following to be critical accounting policies: the determination of the allowances for
loan losses; the valuation of loans held for sale; the determination of whether an impairment of securities is other
than temporary; the determination of the amount, if any, of goodwill impairment; and the determination of the
valuation allowance for deferred tax assets.
The judgments used by management in applying these critical accounting policies may be influenced by
further and prolonged deterioration in the economic environment, which may result in changes to future financial
45
results. In addition, the current economic environment has increased the degree of uncertainty inherent in our
judgments, estimates, and assumptions.
Allowances for Loan Losses
Allowance for Losses on Non-Covered Loans
The allowance for losses on non-covered loans is increased by provisions for non-covered loan losses that are
charged against earnings, and is reduced by net charge-offs and/or reversals, if any, that are credited to earnings.
Although non-covered loans are held by either the Community Bank or the Commercial Bank, and a separate loan
loss allowance is established for each, the total of the two allowances is available to cover all losses incurred. In
addition, except as otherwise noted below, the process for establishing the allowance for losses on non-covered
loans is the same for each of the Community Bank and the Commercial Bank. In determining the respective
allowances for loan losses, management considers the Community Bank’s and the Commercial Bank’s current
business strategies and credit processes, including compliance with guidelines approved by the respective Boards of
Directors with regard to credit limitations, loan approvals, underwriting criteria, and loan workout procedures.
The allowance for losses on non-covered loans is established based on our evaluation of the probable inherent
losses in our portfolio in accordance with GAAP, and are comprised of both specific valuation allowances and
general valuation allowances.
Specific valuation allowances are established based on management’s analyses of individual loans that are
considered impaired. If a non-covered loan is deemed to be impaired, management measures the extent of the
impairment and establishes a specific valuation allowance for that amount. A non-covered loan is classified as
“impaired” when, based on current information and events, it is probable that we will be unable to collect both the
principal and interest due under the contractual terms of the loan agreement. We apply this classification as
necessary to non-covered loans individually evaluated for impairment in our portfolios of multi-family; commercial
real estate; acquisition, development, and construction; and commercial and industrial loans. Smaller balance
homogenous loans and loans carried at the lower of cost or fair value are evaluated for impairment on a collective,
rather than individual, basis.
We generally measure impairment on an individual loan and determine the extent to which a specific
valuation allowance is necessary by comparing the loan’s outstanding balance to either the fair value of the
collateral, less the estimated cost to sell, or the present value of expected cash flows, discounted at the loan’s
effective interest rate. A specific valuation allowance is established when the fair value of the collateral, net of the
estimated costs to sell, or the present value of the expected cash flows is less than the recorded investment in the
loan.
We also follow a process to assign general valuation allowances to non-covered loan categories. General
valuation allowances are established by applying our loan loss provisioning methodology, and reflect the inherent
risk in outstanding held-for-investment loans. This loan loss provisioning methodology considers various factors in
determining the appropriate quantified risk factors to use to determine the general valuation allowances. The factors
assessed begin with the historical loan loss experience for each of the major loan categories we maintain. Our
historical loan loss experience is then adjusted by considering qualitative or environmental factors that are likely to
cause estimated credit losses associated with the existing portfolio to differ from historical loss experience,
including, but not limited to:
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
Changes in lending policies and procedures, including changes in underwriting standards and collection,
charge-off, and recovery practices;
Changes in international, national, regional, and local economic and business conditions and developments
that affect the collectability of the portfolio, including the condition of various market segments;
Changes in the nature and volume of the portfolio and in the terms of loans;
Changes in the volume and severity of past due loans, the volume of non-accrual loans, and the volume and
severity of adversely classified or graded loans;
Changes in the quality of our loan review system;
Changes in the value of the underlying collateral for collateral-dependent loans;
The existence and effect of any concentrations of credit, and changes in the level of such concentrations;
Changes in the experience, ability, and depth of lending management and other relevant staff; and
46
(cid:120)
The effect of other external factors, such as competition and legal and regulatory requirements, on the level
of estimated credit losses in the existing portfolio.
By considering the factors discussed above, we determine quantifiable risk factors that are applied to each
non-impaired loan or loan type in the loan portfolio to determine the general valuation allowances.
In recognition of prevailing macroeconomic and real estate market conditions, the time periods considered for
historical loss experience continue to be the last three years and the current period. We also evaluate the sufficiency
of the overall allocations used for the allowance for losses on non-covered loans by considering the loss experience
in the current and prior calendar year.
(cid:120)
(cid:120)
(cid:120)
The process of establishing the allowance for losses on non-covered loans also involves:
Periodic inspections of the loan collateral by qualified in-house and external property appraisers/inspectors,
as applicable;
Regular meetings of executive management with the pertinent Board committee, during which observable
trends in the local economy and/or the real estate market are discussed;
(cid:120) Assessment of the aforementioned factors by the pertinent members of the Boards of Directors and
executive management when making a business judgment regarding the impact of anticipated changes on
the future level of loan losses; and
(cid:120) Analysis of the portfolio in the aggregate, as well as on an individual loan basis, taking into consideration
payment history, underwriting analyses, and internal risk ratings.
In order to determine their overall adequacy, each of the respective loan loss allowances is reviewed quarterly
by management and by the Mortgage and Real Estate Committee of the Community Bank’s Board of Directors (the
“Mortgage Committee”) or the Credit Committee of the Board of Directors of the Commercial Bank (the “Credit
Committee”), as applicable.
We charge off loans, or portions of loans, in the period that such loans, or portions thereof, are deemed
uncollectible. The collectability of individual loans is determined through an assessment of the financial condition
and repayment capacity of the borrower and/or through an estimate of the fair value of any underlying collateral.
Generally, the time period in which this assessment is made is within the same quarter that the loan is considered
impaired and quarterly thereafter. For non-real estate-related consumer credits, the following past-due time periods
determine when charge-offs are typically recorded: (1) closed-end credits are charged off in the quarter that the loan
becomes 120 days past due; (2) open-end credits are charged off in the quarter that the loan becomes 180 days past
due; and (3) both closed-end and open-end credits are typically charged off in the quarter that the credit is 60 days
past the date we received notification that the borrower has filed for bankruptcy.
The level of future additions to the respective non-covered loan loss allowances is based on many factors,
including certain factors that are beyond management’s control such as changes in economic and local market
conditions, including declines in real estate values, and increases in vacancy rates and unemployment. Management
uses the best available information to recognize losses on loans or to make additions to the loan loss allowances;
however, the Community Bank and/or the Commercial Bank may be required to take certain charge-offs and/or
recognize further additions to their loan loss allowances, based on the judgment of regulatory agencies with regard
to information provided to them during their examinations of the Banks.
Allowance for Losses on Covered Loans
We have elected to account for the loans acquired in the AmTrust Bank (“AmTrust”) and Desert Hills Bank
(“Desert Hills”) acquisitions (i.e., our covered loans) based on expected cash flows. This election is in accordance
with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 310-30,
“Loans and Debt Securities Acquired with Deteriorated Credit Quality” (“ASC 310-30”). In accordance with ASC
310-30, we will maintain the integrity of a pool of multiple loans accounted for as a single asset and with a single
composite interest rate and an aggregate expectation of cash flows.
Under our 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, we periodically perform an analysis to estimate the expected cash flows for each of the loan pools. We record
47
a provision for losses on covered loans to the extent that the expected cash flows from a loan pool have decreased
for credit-related items since the acquisition date. Accordingly, if there is a decrease in expected cash flows due to
an increase in estimated credit losses compared to the estimates made at the respective acquisition dates, the
decrease in the present value of expected cash flows will be recorded as a provision for covered loan losses charged
to earnings, and the allowance for covered loan losses will be increased. A related credit to non-interest income and
an increase in the FDIC loss share receivable will be recognized at the same time, and will be measured based on the
loss sharing agreement percentages.
Please see Note 5, “Allowances for Loan Losses” for a further discussion of our allowance for losses on
covered loans as well as additional information about our allowances for losses on non-covered loans.
Loans Held for Sale
We carry at fair value the one-to-four family mortgage loans we originate for sale to investors. The fair value
of such loans is primarily based on quoted market prices for securities backed by similar types of loans. Changes in
fair value, which are recorded as a component of mortgage banking income, are largely driven by changes in interest
rates subsequent to loan funding and changes in the fair value of servicing associated with mortgage loans held for
sale. In addition, we use various derivative instruments to mitigate the economic effect of changes in the fair value
of the underlying loans.
Investment Securities
The securities portfolio primarily consists of mortgage-related securities and, to a lesser extent, debt and
equity (together, “other”) securities. Securities that are classified as “available for sale” are carried at their estimated
fair value, with any unrealized gains or losses, net of taxes, reported as accumulated other comprehensive income or
loss in stockholders’ equity. Securities that we have the intent and ability to hold to maturity are classified as “held
to maturity” and carried at amortized cost, less the non-credit portion of OTTI recorded in AOCL.
The fair values of our securities—and particularly our fixed-rate securities—are affected by changes in market
interest rates and credit spreads. In general, as interest rates rise and/or credit spreads widen, the fair value of fixed-
rate securities will decline; as interest rates fall and/or credit spreads tighten, the fair value of fixed-rate securities
will rise. We regularly conduct a review and evaluation of our securities portfolio to determine if the decline in the
fair value of any security below its carrying amount is other than temporary. If we deem any decline in value to be
other than temporary, the security is written down to its current fair value, creating a new cost basis, and the
resultant loss (other than the OTTI on debt securities attributable to non-credit factors) is charged against earnings
and recorded in non-interest income. Our assessment of a decline in fair value includes judgment as to the financial
position and future prospects of the entity that issued the investment security, as well as a review of the security’s
underlying collateral. Broad changes in the overall market or interest rate environment generally will not lead to a
write-down.
In accordance with OTTI accounting guidance, unless we have the intent to sell, or it is more likely than not
that we may be required to sell a security before recovery, OTTI is recognized as a realized loss on the income
statement to the extent that the decline in fair value is credit-related. If there is a decline in fair value of a security
below its carrying amount and we have the intent to sell it, or it is more likely than not that we may be required to
sell the security before recovery, the entire amount of the decline in fair value is charged to earnings.
Goodwill Impairment
Goodwill is presumed to have an indefinite useful life and is tested for impairment, rather than amortized, at
the reporting unit level, at least once a year. In addition to being tested annually, goodwill would be tested if there
were a “triggering event.” The goodwill impairment analysis is a two-step test. However, a company can, under
Accounting Standards Update (“ASU”) No. 2011-08, “Testing Goodwill for Impairment”, first assess qualitative
factors to determine whether it is necessary to perform the two-step quantitative goodwill impairment test. Under
this amendment, an entity would not be required to calculate the fair value of a reporting unit unless the entity
determined, based on a qualitative assessment, that it was more likely than not that its fair value was less than its
carrying amount. The Company did not elect to perform a qualitative assessment in 2012. The first step (“Step 1”) is
used to identify potential impairment, and involves comparing each reporting segment’s estimated fair value to its
carrying amount, including goodwill. If the estimated fair value of a reporting segment exceeds its carrying amount,
goodwill is considered not to be impaired. If the carrying amount exceeds the estimated fair value, there is an
indication of potential impairment and the second step (“Step 2”) is performed to measure the amount.
48
Step 2 involves calculating an implied fair value of goodwill for each reporting segment for which impairment
was indicated in Step 1. The implied fair value of goodwill is determined in a manner similar to the amount of
goodwill calculated in a business combination, i.e., by measuring the excess of the estimated fair value of the
reporting segment, as determined in Step 1, over the aggregate estimated fair values of the individual assets,
liabilities, and identifiable intangibles, as if the reporting segment were being acquired in a business combination at
the impairment test date. If the implied fair value of goodwill exceeds the carrying amount of goodwill assigned to
the reporting segment, there is no impairment. If the carrying amount of goodwill assigned to a reporting segment
exceeds the implied fair value of the goodwill, an impairment charge is recorded for the excess. An impairment loss
cannot exceed the carrying amount of goodwill assigned to a reporting segment, and the loss establishes a new basis
in the goodwill. Subsequent reversal of goodwill impairment losses is not permitted.
Quoted market prices in active markets are the best evidence of fair value and are used as the basis for
measurement, when available. Other acceptable valuation methods include present-value measurements based on
multiples of earnings or revenues, or similar performance measures. Differences in the identification of reporting
units and in valuation techniques could result in materially different evaluations of impairment.
For the purpose of goodwill impairment testing, management has determined that the Company has two
reporting segments: Banking Operations and Residential Mortgage Banking. All of our recorded goodwill has
resulted from prior acquisitions and, accordingly, is attributed to Banking Operations. There is no goodwill
associated with Residential Mortgage Banking, as this segment was acquired in our FDIC-assisted AmTrust
acquisition, which resulted in a bargain purchase gain. In order to perform our annual goodwill impairment test, we
determined the carrying value of the Banking Operations segment to be the carrying value of the Company and
compared it to the fair value of the Banking Operations segment as the fair value of the Company.
We performed our annual goodwill impairment test as of December 31, 2012 and found no indication of
goodwill impairment at that date.
Income Taxes
In estimating income taxes, management assesses the relative merits and risks of the tax treatment of
transactions, taking into account statutory, judicial, and regulatory guidance in the context of our tax position. In this
process, management also relies on tax opinions, recent audits, and historical experience. Although we use the best
available information to record income taxes, underlying estimates and assumptions can change over time as a result
of unanticipated events or circumstances such as changes in tax laws and judicial guidance influencing our overall or
transaction-specific tax position.
We recognize deferred tax assets and liabilities for the future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, and
the carryforward of certain tax attributes such as net operating losses. A valuation allowance is maintained for
deferred tax assets that we estimate are more likely than not to be unrealizable, based on available evidence at the
time the estimate is made. In assessing the need for a valuation allowance, we estimate future taxable income,
considering the prudence and feasibility of tax planning strategies and the realizability of tax loss carryforwards.
Valuation allowances related to deferred tax assets can be affected by changes to tax laws, statutory tax rates, and
future taxable income levels. In the event we were to determine that we would not be able to realize all or a portion
of our net deferred tax assets in the future, we would reduce such amounts through a charge to income tax expense
in the period in which that determination was made. Conversely, if we were to determine that we would be able to
realize our deferred tax assets in the future in excess of the net carrying amounts, we would decrease the recorded
valuation allowance through a decrease in income tax expense in the period in which that determination was made.
Subsequently recognized tax benefits associated with valuation allowances recorded in a business combination
would be recorded as an adjustment to goodwill.
49
FINANCIAL CONDITION
Balance Sheet Summary
At December 31, 2012, our assets totaled $44.1 billion, reflecting a year-over-year increase of $2.1 billion, or
5.0%. The increase was largely attributable to a $1.5 billion increase in total loans to $31.8 billion and a $373.0
million increase in total securities to $4.9 billion.
Total deposits rose $2.6 billion year-over-year, to $24.9 billion, reflecting the assumption of deposits in the
Aurora Bank transaction as well as organic retail deposit growth. Certificates of deposit (“CDs”) represented $9.1
billion, or 36.7%, of the year-end 2012 total, with NOW and money market accounts, savings accounts, and non-
interest bearing deposits together representing the remaining $15.8 billion, or 63.3%. During this time, borrowed
funds declined by $530.2 million, reflecting a $371.2 million decline in wholesale borrowings to $13.1 billion and
more modest declines in the balances of junior subordinated debentures and other borrowings.
Stockholders’ equity rose $90.6 million year-over-year to $5.7 billion, representing 12.81% of total assets and
a book value per share of $12.88. Tangible stockholders’ equity rose $110.2 million year-over-year, to $3.2 billion,
representing 7.65% of tangible assets and a tangible book value per share of $7.26. (Please see the discussion and
reconciliations of stockholders’ equity and tangible stockholders’ equity, total assets and tangible assets, and the
related capital measures that appear on the last page of this discussion and analysis of financial condition and results
of operations.)
Loans
Notwithstanding the prepayment of our largest loan relationship in the amount of $545.5 million, total loans
rose $1.5 billion, or 4.8%, year-over-year to $31.8 billion, representing 72.0% of total assets at December 31, 2012.
Covered loans represented $3.3 billion, or 10.3%, of the year-end 2012 balance, while non-covered loans accounted
for the remaining $28.5 billion, or 89.7%. Included in non-covered loans were $27.3 billion of loans held for
investment, representing 85.9% of the total loan balance, and $1.2 billion of loans held for sale.
Covered Loans
“Covered loans” refers to the loans we acquired in our FDIC-assisted AmTrust Bank (“AmTrust”) and Desert
Hills Bank (“Desert Hills”) acquisitions, and are referred to as such because they are covered by loss sharing
agreements with the FDIC. At December 31, 2012, covered loans represented $3.3 billion, or 10.3%, of the total
loan balance, a $469.0 million reduction from the year-earlier amount.
One-to-four family loans represented $3.0 billion of total covered loans at the end of this December, with all
other types of covered loans representing $308.0 million, combined. Covered one-to-four family loans include both
fixed and adjustable rate loans. Covered other loans consist of commercial real estate (“CRE”) loans; acquisition,
development, and construction (“ADC”) loans; multi-family loans; commercial and industrial (“C&I”) loans; home
equity lines of credit (“HELOCs”); and consumer loans.
At December 31, 2012, $2.4 billion, or 72.8%, of the loans in our covered loan portfolio were variable rate
loans, with a weighted average interest rate of 3.86%. The remainder of the covered loan portfolio consisted of fixed
rate loans.
At December 31, 2012, the interest rates on 88.8% of our covered variable rate loans were scheduled to
reprice within twelve months and annually thereafter. We expect such loans to reprice at lower interest rates. The
interest rates on the variable rate loans in the covered loan portfolio are indexed to either the one-year LIBOR or the
one-year Treasury rate, plus a spread in the range of 2% to 5%, subject to certain caps.
The AmTrust and Desert Hills loss sharing agreements each require the FDIC to reimburse us for 80% of
losses up to a specified threshold, and for 95% of losses beyond that threshold, with respect to covered loans and
covered other real estate owned (“OREO”).
In 2012, we recorded a provision for losses on covered loans of $18.0 million, as compared to $21.4 million in
the prior year. The reduction was largely attributable to a $3.3 million recovery in the fourth quarter, reflecting an
increase in expected cash flows from certain pools of acquired loans. The respective provisions were largely offset
by FDIC indemnification income of $14.4 million and $17.6 million, recorded in non-interest income in the
corresponding years.
50
Geographical Analysis of the Covered Loan Portfolio
The following table presents a geographical analysis of our covered loan portfolio at December 31, 2012:
(in thousands)
California
Florida
Arizona
Ohio
Massachusetts
Michigan
Illinois
New York
Nevada
Texas
Maryland
New Jersey
Colorado
Washington
All other states
Total covered loans
$ 582,924
570,423
273,316
212,511
150,275
146,920
113,146
106,233
83,064
80,967
79,173
75,798
70,190
69,594
669,527
$3,284,061
Loan Maturity and Repricing: Covered Loans
The following table sets forth the maturity or period to repricing of our covered loan portfolio at December 31,
2012. Loans that have adjustable rates are shown as being due or repricing in the period during which the interest
rates are next subject to change.
(in thousands)
Amount due or repricing:
Within one year
After one year:
One to five years
Over five years
Total due or repricing after one year
Total amounts due or repricing, gross
Covered Loans at December 31, 2012
One-to-Four
Family
All Other
Loans
Total
Loans
$1,706,086
$273,858
$1,979,944
25,538
1,244,443
1,269,981
$2,976,067
25,881
8,255
34,136
$307,994
51,419
1,252,698
1,304,117
$3,284,061
The following table sets forth, as of December 31, 2012, the dollar amount of all covered loans due or
repricing after December 31, 2013, and indicates whether such loans have fixed or adjustable rates of interest.
Due or Repricing
after December 31, 2013
(in thousands)
One-to-four family
All other loans
Total loans
Fixed
$964,185
11,444
$975,629
Adjustable
$305,796
22,692
$328,488
Total
$1,269,981
34,136
$1,304,117
Non-Covered Loans Held for Investment
At December 31, 2012, non-covered loans held for investment totaled $27.3 billion, representing 85.9% of
total loans, 61.8% of total assets, and a 6.9% increase from the year-earlier balance of $25.5 billion. In addition to
multi-family loans and CRE loans, the held-for-investment portfolio includes substantially smaller balances of ADC
loans, one-to-four family loans, and other loans, with C&I loans comprising the bulk of the “other” loan portfolio.
The vast majority of our non-covered loans held for investment consist of loans that we ourselves originated or, in
some cases, acquired in our business combinations prior to 2009.
Originations of held-for-investment loans totaled $9.0 billion in 2012, comparable to the volume produced in
the prior year. While portfolio growth was limited by an increase in repayments, we benefited from the related rise
51
in prepayment penalty income, as further discussed under “Net Interest Income” later in this discussion and analysis
of financial condition and results of operations.
Multi-Family Loans
Multi-family loans are our principal asset, and non-luxury residential apartment buildings with below-market
rents in New York City constitute our primary lending niche. Consistent with our emphasis on multi-family lending,
multi-family loan originations represented $5.8 billion, or 64.6%, of the loans we produced in 2012 for investment,
modestly exceeding the year-earlier amount. Although most of the loans we produced in 2012 were the result of
borrowers refinancing, an increase in property sales and other transactions also played a part. This was especially
true late in the fourth quarter, as many of our borrowers anticipated changes being made to the U.S. tax code that
could have an adverse impact on their investments in real estate.
At December 31, 2012, the balance of multi-family loans represented $18.6 billion, or 68.2%, of total non-
covered loans held for investment, reflecting a year-over-year increase of $1.2 billion, despite the prepayment of our
then-largest loan relationship in the fourth quarter of the year. The average multi-family loan had a principal balance
of $4.1 million at the end of this December, comparable to the average principal balance at December 31, 2011.
The vast majority of our multi-family loans are made to long-term owners of buildings with apartments that
are subject to rent regulation, and therefore feature below-market rents. Our borrowers typically use the funds we
provide to make improvements to certain apartments, as a result of which they are able to increase the rents their
tenants pay. In doing so, the borrower creates more cash flows to borrow against in future years. We also make loans
to building owners seeking to expand their real estate holdings with the purchase of additional properties.
In addition to underwriting multi-family loans on the basis of the buildings’ income and condition, we
consider the borrowers’ credit history, profitability, and building management expertise. Borrowers are required to
present evidence of their ability to repay the loan from the buildings’ current rent rolls, their financial statements,
and related documents.
Our multi-family loans typically feature a term of ten or twelve years, with a fixed rate of interest for the first
five or seven years of the loan, and an alternative rate of interest in years six through ten or eight through twelve.
The rate charged in the first five or seven years is generally based on intermediate-term interest rates plus a spread.
During the remaining years, the loan resets to an annually adjustable rate that is tied to the prime rate of interest, as
reported in The New York Times, plus a spread. Alternately, the borrower may opt for a fixed rate that is tied to the
five-year fixed advance rate of the Federal Home Loan Bank (“FHLB”) of New York (the “FHLB-NY”), plus a
spread. The fixed-rate option also requires the payment of an amount equal to one percentage point of the then-
outstanding loan balance. In either case, the minimum rate at repricing is equivalent to the rate in the initial five- or
seven-year term.
As the rent roll increases, the typical property owner seeks to refinance the mortgage, and generally does so
before the loan reprices in year six or eight. Notably, the expected weighted average life of the multi-family loan
portfolio was 2.9 years at December 31, 2012, as compared to 3.3 years at December 31, 2011, an indication of the
increase in refinancing activity and property transactions over the course of the year.
Multi-family loans that refinance within the first five or seven years are typically subject to an established
prepayment penalty schedule. Depending on the remaining term of the loan at the time of prepayment, the penalties
normally range from five percentage points to one percentage point of the then-current loan balance. If a loan
extends past the fifth or seventh year and the borrower selects the fixed rate option, the prepayment penalties
typically reset to a range of five points to one point over years six through ten or eight through twelve. For example,
a ten-year multi-family loan that prepays in year three would generally be expected to pay a prepayment penalty
equal to three percentage points of the remaining principal balance. A twelve-year multi-family loan that prepays in
year one or two would generally be expected to pay a penalty equal to five percentage points.
Prepayment penalties are recorded as interest income and are therefore reflected in the average yields on our
loans and assets, our interest rate spread and net interest margin, and the level of net interest income we record. No
assumptions are involved in the recognition of prepayment penalty income, as such income is only recorded when
cash is received.
Our success as a multi-family lender partly reflects the solid relationships we have developed with the
market’s leading mortgage brokers, who are familiar with our lending practices, our underwriting standards, and our
long-standing practice of basing our loans on the cash flows produced by the properties. Because the multi-family
52
market is largely broker-driven, the process of producing such loans is expedited, with loans generally taking four to
six weeks to process, and the related expenses being substantially reduced.
At December 31, 2012, the vast majority of our multi-family loans were secured by rental apartment
buildings. In addition, 79.0% of our multi-family loans were secured by buildings in New York City, with
Manhattan accounting for the largest share. Of the loans secured by buildings outside New York City, the State of
New York was home to 4.8%, with New Jersey and Pennsylvania accounting for 7.6% and 3.5%, respectively. The
remaining 5.1% of multi-family loans were secured by buildings outside these markets, including the three other
states served by our retail branch offices.
Our emphasis on multi-family loans is driven by several factors, including their structure, which reduces our
exposure to interest rate volatility to some degree. Another factor driving our focus on multi-family lending has been
the comparative quality of the loans we produce. Reflecting the nature of the buildings securing our loans, our
underwriting standards, and the generally conservative LTV ratios our multi-family loans feature at origination, a
relatively small percentage of the multi-family loans that have transitioned to non-performing status have actually
resulted in losses during the most recent downturn in the credit cycle, as well as historically.
We primarily underwrite our multi-family loans based on the current cash flows produced by the collateral
property, with a reliance on the “income” approach to appraising the properties, rather than the “sales” approach.
The sales approach is subject to fluctuations in the real estate market, as well as general economic conditions, and is
therefore likely to be more risky in the event of a downward credit cycle turn. We also consider a variety of other
factors, including the physical condition of the underlying property; the net operating income of the mortgaged
premises prior to debt service and depreciation; the debt service coverage ratio, which is the ratio of the property’s
net operating income to its debt service; and the ratio of the loan amount to the appraised value of the property. The
multi-family loans we are originating today generally represent no more than 75% of the lower of the appraised
value or the sales price of the underlying property, and typically feature an amortization period of up to 30 years. In
addition to requiring a minimum debt service coverage ratio of 120% on multi-family buildings, we obtain a security
interest in the personal property located on the premises, and an assignment of rents and leases.
Accordingly, while our multi-family lending niche has not been immune to downturns in the credit cycle, we
continue to believe that the multi-family loans we produce involve less credit risk than certain other types of loans.
In general, buildings that are subject to rent regulation have tended to be stable, with occupancy levels remaining
more or less constant over time. Because the rents are typically below market and the buildings securing our loans
are generally maintained in good condition, we believe that they are reasonably likely to retain their tenants in
adverse economic times. In addition, we underwrite our multi-family loans on the basis of the current cash flows
generated by the underlying properties, and exclude any partial property tax exemptions and abatement benefits the
property owners receive.
Commercial Real Estate Loans
In 2012, CRE loans represented $2.4 billion, or 26.8%, of loans originated for investment, a $39.5 million
increase from the year-earlier amount. Although the growth of the portfolio was somewhat tempered by the level of
repayments, the balance of CRE loans rose $581.4 million, or 8.5%, year-over-year to $7.4 billion at the end of this
past December, representing 27.3% of the total held-for-investment portfolio at that date. At December 31, 2012, the
average CRE loan had a principal balance of $4.6 million, as compared to $3.9 million at the prior year-end. The
increase in CRE loan production was primarily due to the low level of market interest rates, continued improvement
in local market conditions, and the origination of certain larger CRE loans.
The CRE loans we produce are secured by income-producing properties such as office buildings, retail
centers, mixed-use buildings, and multi-tenanted light industrial properties. At December 31, 2012, 74.2% of our
CRE loans were secured by properties in New York City, primarily in Manhattan, while properties on Long Island
and in New Jersey accounted for 12.4% and 6.1%, respectively. Another 2.7% of CRE properties were located in
Pennsylvania, while properties outside New York, New Jersey, and Pennsylvania accounted for 2.0%.
The pricing of our CRE loans is similar to the pricing of our multi-family credits, i.e., with a fixed rate of
interest for the first five or seven years of the loan that is generally based on intermediate-term interest rates plus a
spread. During years six through ten or eight through twelve, the loan resets to an annually adjustable rate that is tied
to the prime rate of interest, as reported in The New York Times, plus a spread. Alternately, the borrower may opt for
a fixed rate that is tied to the five-year fixed advance rate of the FHLB-NY plus a spread. The fixed-rate option also
requires the payment of an amount equal to one percentage point of the then-outstanding loan balance. In either
case, the minimum rate at repricing is equivalent to the rate in the initial five-year term.
53
Prepayment penalties also apply to CRE loans, as they do to our multi-family credits. Depending on the
remaining term of the loan at the time of prepayment, the penalties normally range from five percentage points to
one percentage point of the then-current loan balance. If a loan extends past the fifth or seventh year and the
borrower selects the fixed rate option, the prepayment penalties typically reset to a range of five points to one point
over years six through ten or eight through twelve. Our CRE loans tend to refinance within three to four years of
origination; in fact, the expected weighted average life of the CRE portfolio was 3.4 years at both December 31,
2012 and 2011.
The repayment of loans secured by commercial real estate is often dependent on the successful operation and
management of the underlying properties. To minimize our credit risk, we originate CRE loans in adherence with
conservative underwriting standards, and require that such loans qualify on the basis of the property’s current
income stream and debt service coverage ratio. The approval of a loan also depends on the borrower’s credit history,
profitability, and expertise in property management, and generally requires a minimum debt service coverage ratio
of 130% and a maximum LTV ratio of 65%. In addition, the origination of CRE loans typically requires a security
interest in the fixtures, equipment, and other personal property of the borrower and/or an assignment of the rents
and/or leases.
Acquisition, Development, and Construction Loans
In the interest of reducing our exposure to credit risk, we have limited our production of ADC loans to loans
that have limited market risk and low LTV ratios, and that are made to reputable borrowers with significant
development experience. In 2012, ADC loans represented $153.2 million, or 1.7%, of the loans we produced for
investment, and the portfolio of such loans declined $47.8 million year-over-year, to $397.9 million, representing
1.5% of total loans held for investment, at December 31, 2012.
At December 31, 2012, 60.4% of the loans in our ADC portfolio were for land acquisition and development;
the remaining 39.6% consisted of loans that were provided for the construction of owner-occupied homes and
commercial properties. Such loans are typically originated for terms of 18 to 24 months, and feature a floating rate
of interest tied to prime, with a floor. They also generate origination fees that are recorded as interest income and
amortized over the lives of the loans.
In addition, 76.2% of the loans in the ADC portfolio were for properties in New York City, with Manhattan
accounting for more than half of New York City’s share. Long Island accounted for 12.1% of our ADC loans, with
New Jersey accounting for 8.4%. Reflecting the limited extent to which ADC loans have been originated beyond our
immediate market, 3.3% of our ADC loans are secured by properties beyond New Jersey and New York.
Because ADC loans are generally considered to have a higher degree of credit risk, especially during a
downturn in the credit cycle, borrowers are required to provide a guarantee of repayment and completion. In the
twelve months ended December 31, 2012, we recovered losses against guarantees of $3.0 million, in contrast to
$120,000 in the prior year. 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; the estimated cost of construction, including
interest; and the estimated time to complete and/or sell or lease such property. If the appraised value proves to be
inaccurate, the cost of completion is greater than expected, or the length of time to complete and/or sell or lease the
collateral property is greater than anticipated, the property could have a value upon completion that is insufficient to
assure full repayment of the loan. Reflecting the disposition of certain non-performing assets, 3.0% of the loans in
our ADC loan portfolio were non-performing at the end of this December, as compared to 6.7% at December 31,
2011.
When applicable, as a condition to closing an ADC loan, it is our practice to require that residential properties
be pre-sold or that borrowers secure permanent financing commitments from a recognized lender for an amount
equal to, or greater than, the amount of our loan. In some cases, we ourselves may provide permanent financing. We
typically require pre-leasing for ADC loans on commercial properties.
One-to-Four Family Loans
To meet the needs of our customers, we originate agency-conforming one-to-four family loans through our
mortgage banking business in Cleveland or, in some states, directly through the Community Bank. The vast majority
of the one-to-four family loans we produce are aggregated for sale with others produced by our mortgage banking
clients throughout the country. These loans are generally sold, servicing retained, to government-sponsored
enterprises (“GSEs”). (For more detailed information about our production of one-to-four family loans for sale,
please see “Non-Covered Loans Held for Sale” later in this section.)
54
Until last year, the vast majority of the one-to-four family loans we held for investment were loans that we
acquired in our merger transactions prior to 2009. However, in 2012, we began to originate hybrid jumbo one-to-
four family loans for our own portfolio. As a result, the balance of one-to-four family loans held for investment rose
$76.1 million year-over-year to $203.4 million, representing 0.75% of total held-for-investment loans at
December 31st.
Other Loans
Largely reflecting our focus on the production of multi-family and CRE loans, we originated other loans for
investment of $519.2 million in 2012, representing a $196.0 million decrease from the year-earlier amount. C&I
loans represented $514.3 million of the 2012 total, and were down $191.5 million year-over-year. As a result, the
portfolio of other loans declined $30.0 million from the balance at year-end 2011, to $639.9 million, representing
2.3% of total loans held for investment at December 31, 2012. Included in the latter balance were C&I loans of
$590.0 million, reflecting a $9.9 million reduction from the year-earlier amount.
The vast majority of our C&I loans are made to small and mid-size businesses in New York City and Long
Island, and are tailored to meet the specific needs of our borrowers. The loans we produce include term loans,
demand loans, revolving lines of credit, letters of credit, and, to a lesser extent, loans that are partly guaranteed by
the Small Business Administration. A broad range of C&I loans, both collateralized and unsecured, are made
available to businesses for working capital (including inventory and accounts receivable), business expansion, the
purchase of machinery and equipment, and other general corporate needs. In determining the term and structure of a
C&I loan, several factors are considered, including its purpose, the collateral, and the anticipated sources of
repayment. C&I loans are typically secured by business assets and personal guarantees of the borrower, and include
financial covenants to monitor the borrower’s financial stability.
The interest rates on C&I loans can be fixed or floating, with floating rate loans being tied to prime or some
other market index, plus an applicable spread. Our floating rate loans may or may not feature a floor rate of interest.
The decision to require a floor on C&I loans depends on the level of competition we face for such loans from other
institutions, the direction of market interest rates, and the profitability of our relationship with the borrower.
A benefit of C&I lending is the opportunity to establish full-scale banking relationships with our C&I
customers. As a result, many of our borrowers provide us with deposits, and many take advantage of our fee-based
cash management, investment, and trade finance services.
The remainder of the portfolio of other loans consists primarily of home equity loans and lines of credit, as
well as a variety of consumer loans, most of which were originated by our pre-2009 merger partners prior to their
joining the Company. We currently do not offer home equity loans or lines of credit.
Lending Authority
The loans we originate for investment are subject to federal and state laws and regulations, and are
underwritten in accordance with loan underwriting policies and procedures approved by the Mortgage Committee,
the Credit Committee, and the respective Boards of Directors.
In accordance with the Banks’ policies, all loans are presented to the Mortgage Committee or the Credit
Committee, as applicable, for approval, and all loans of $10.0 million or more are reported to the respective Boards
of Directors. In 2012, 177 loans of $10.0 million or more were originated by the Banks, with an aggregate loan
balance of $4.9 billion at origination. In 2011, 145 loans of $10.0 million or more were originated by the Banks,
with an aggregate loan balance at origination of $5.0 billion.
At December 31, 2012, the largest amount of credit extended to a single borrower was $500.0 million; of this
amount, $485.0 million had been funded at that date. The loan was originated by the Community Bank on July 28,
2011 to the owner of a commercial property located in Manhattan, and has been current since that date. The interest
rate on the loan was 4.375% at December 31, 2012.
55
Geographical Analysis of the Portfolio of Non-Covered Loans Held for Investment (1)
The following table presents a geographical analysis of the multi-family, CRE, and ADC loans in our held-
for-investment portfolio at December 31, 2012:
Multi-Family Loans
At December 31, 2012
Commercial Real Estate
Loans
(dollars in thousands)
New York City:
Manhattan
Brooklyn
Bronx
Queens
Staten Island
Total New York City
Long Island
Other New York State
New Jersey
Pennsylvania
All other states
Total
Amount
$ 6,675,788
3,505,741
2,403,780
1,987,604
123,765
$14,696,678
380,709
507,722
1,406,035
650,496
954,193
$18,595,833
Percent
of Total
35.90%
18.85
12.93
10.69
0.66
79.03%
2.05
2.73
7.56
3.50
5.13
100.00%
Amount
$4,185,351
450,314
191,286
621,372
72,004
$5,520,327
923,094
189,627
455,319
197,948
150,283
$7,436,598
Percent
of Total
56.28%
6.06
2.57
8.36
0.97
74.24%
12.41
2.55
6.12
2.66
2.02
100.00%
Acquisition, Development,
and Construction Loans
Percent
of Total
Amount
$156,466
87,407
3,308
47,561
8,598
$303,340
47,989
--
33,603
--
12,985
$397,917
39.32%
21.97
0.83
11.95
2.16
76.23%
12.06
--
8.45
--
3.26
100.00%
(1) The majority of our other loans held for investment are secured by properties and/or businesses in the Metro New York
region.
Loan Maturity and Repricing Analysis of the Portfolio of Non-Covered Loans Held for Investment
The following table sets forth the maturity or period to repricing of our portfolio of non-covered loans held for
investment at December 31, 2012. Loans that have adjustable rates are shown as being due in the period during
which the interest rates are next subject to change.
Non-Covered Loans Held for Investment
at December 31, 2012
Acquisition,
Development, One-to-Four
and Construction
Family
Other
Multi-
Family
Commercial
Real Estate
Total
Loans
$ 941,982
$ 836,222
$351,132
$ 31,784
$261,455 $ 2,422,575
11,610,810
6,043,041
3,386,838
3,213,538
17,653,851
6,600,376
45,069
1,716
46,785
46,575
125,076
222,856
155,613
15,312,148
9,538,984
171,651
378,469
24,851,132
$18,595,833
$7,436,598
$397,917
$203,435
$639,924 $27,273,707
(in thousands)
Amount due:
Within one year
After one year:
One to five years
Over five years
Total due or repricing
after one year
Total amounts due or
repricing, gross
The following table sets forth, as of December 31, 2012, the dollar amount of all non-covered loans held for
investment that are due after December 31, 2013, and indicates whether such loans have fixed or adjustable rates of
interest:
(in thousands)
Mortgage Loans:
Multi-family
Commercial real estate
Acquisition, development, and construction
One-to-four family
Total mortgage loans
Other loans
Total loans
Due after December 31, 2013
Adjustable
Total
Fixed
$5,161,455
2,639,039
46,785
62,971
7,910,250
286,413
$8,196,663
56
$12,492,396
3,961,337
--
108,680
16,562,413
92,056
$16,654,469
$17,653,851
6,600,376
46,785
171,651
24,472,663
378,469
$24,851,132
Non-Covered Loans Held for Sale
Although one-to-four family loans represented 0.75% of our total loans held for investment, we are actively
engaged in the origination of one-to-four family loans for sale. Our mortgage banking business serves approximately
900 clients—community banks, credit unions, mortgage companies, and mortgage brokers—who utilize our
proprietary web-accessible mortgage banking platform to originate full-documentation, prime credit one-to-four
family loans in all 50 states.
In 2012, we originated one-to-four family loans for sale of $10.9 billion, reflecting a year-over-year increase
of $3.7 billion, or 51.9%. The increase was primarily attributable to refinancing activity and, to a lesser extent, home
purchases, which were driven by the nearly year-long decline in mortgage interest rates. The vast majority of the
held-for-sale loans we produced were agency-conforming loans sold to GSEs. To a much lesser extent, we utilized
our mortgage banking platform to originate jumbo loans under contract for sale to other financial institutions.
At December 31, 2012 and 2011, the respective balances of one-to-four family loans held for sale were $1.2
billion and $1.0 billion, representing 3.8% and 3.4%, respectively, of total loans at the corresponding dates.
To mitigate the risks inherent in originating and reselling residential mortgage loans, we utilize processes,
proprietary technologies, and third-party software application tools that seek to ensure that the loans meet investors’
program eligibility, underwriting, and collateral requirements. In addition, compliance verification and fraud
detection tools are utilized throughout the processing, underwriting, and loan closing stages to assist in the
determination that the loans we originate and acquire are in compliance with applicable local, state, and federal laws
and regulations. Controlling, auditing, and validating the data upon which the credit decision is made (and the loan
documents created) substantially mitigates the risk of our originating or acquiring a loan that subsequently is
deemed to be in breach of loan sale representations and warranties made by us to loan investors.
We require the use of our proprietary processes, origination systems, and technologies for all loans we close.
Collectively, these tools and processes are known internally as our proprietary “Gemstone” system. By mandating
usage of Gemstone for all table-funded loan originations, we are able to tightly control key risk aspects across the
spectrum of loan origination activities. Our clients access Gemstone via secure Internet protocols, and initiate the
process by submitting required loan application data and other required income, asset, debt, and credit documents to
us electronically. Key data is then verified by a combination of trusted third-party validations and internal reviews
conducted by our loan underwriters and quality control specialists. Once key data is independently verified, it is
“locked down” within the Gemstone system to further ensure the integrity of the transaction.
In addition, all “trusted source” third-party vendors are directly connected to the Gemstone system via secure
electronic data interfaces. Within the Gemstone system, these trusted sources provide key risk and control services
throughout the origination process, including ordering and receipt of credit report information, independent
collateral appraisals, and private mortgage insurance, automated underwriting and program eligibility
determinations, flood insurance determination, fraud detection, local/state/federal regulatory compliance, predatory
or “high cost” loan reviews, and legal document preparation services. Our employees augment the automated system
controls by performing audits during the process, which include the final underwriting of the loan file (the credit
decision), and various other pre-funding and post-funding quality control reviews.
Both the agency-conforming and non-conforming (i.e., jumbo) one-to-four family loans we originate for sale
require that we make certain representations and warranties with regard to the underwriting, documentation, and
legal/regulatory compliance, and we may be required to repurchase a loan or loans if it is found that a breach of the
representations and warranties has occurred. In such case, we would be exposed to any subsequent credit loss on the
mortgage loans that might or might not be realized in the future.
As governed by our agreements with the GSEs and other third parties to whom we sell loans, the
representations and warranties we make relate to several factors, including, but not limited to, the ownership of the
loan; the validity of the lien securing the loan; the absence of delinquent taxes or liens against the property securing
the loan as of its closing date; the process used to select the loan for inclusion in a transaction; and the loan’s
compliance with any applicable criteria, including underwriting standards, loan program guidelines, and compliance
with applicable federal, state, and local laws.
We record a liability for estimated losses relating to these representations and warranties, which is included in
“other liabilities” in the accompanying Consolidated Statements of Condition. The related expense is recorded in
“mortgage banking income” in the accompanying Consolidated Statements of Income and Comprehensive
Income. At December 31, 2012 and December 31, 2011, the respective liabilities for estimated possible future losses
57
relating to these representations and warranties were $8.3 million and $5.3 million. The methodology used to
estimate the liability for representations and warranties is a function of the representations and warranties given and
considers a variety of factors, including, but not limited to, actual default experience, estimated future defaults,
historical loan repurchase rates and the frequency and potential severity of defaults, probability that a repurchase
request will be received, and the probability that a loan will be required to be repurchased.
The following table sets forth the activity in our representation and warranty reserve during the periods
indicated:
Representation and Warranty Reserve
(in thousands)(cid:3)
Balance, beginning of period
Provision for repurchase losses:
Loan sales
Change in estimates
Balance, end of period
For the Years Ended
December 31,
2012
$5,320
2,952
--
$8,272
2011
$3,537
1,783
--
$5,320
Because the level of mortgage loan repurchase losses is dependent on economic factors, investor demand
strategies, and other external conditions that may change over the lives of the underlying loans, the level of the
liability for mortgage loan repurchase losses is difficult to estimate and requires considerable management
judgment. However, we believe the amount and range of reasonably possible losses in excess of our reserve is not
material to our operations or to our financial condition or results of operations.
The following table sets forth our GSE repurchase requests during the periods indicated:
Repurchase Request Activity
(dollars in thousands)
Balance, beginning of period
New repurchase requests (2)
Successful rebuttal/rescission
Indemnifications (3)
Loan repurchases (4)
Balance, end of period (5)
For the Twelve Months Ended December 31,
2012
Number of Loans Amount (1)
$ 1,583
24,443
(18,427)
(585)
(1,941)
$ 5,073
8
100
(77)
(3)
(8)
20
2011
Number of Loans Amount (1)
$ 155
21,913
(18,928)
(1,392)
(165)
$ 1,583
1
95
(82)
(5)
(1)
8
(1) Represents the loan balance as of the repurchase request date.
(2) All requests are from GSEs and relate to one-to-four family loans originated for sale.
(3) An indemnification agreement is an arrangement whereby the Company protects the GSEs against future losses.
(4) Of the eight loans repurchased during the twelve months ended 2012, two were originated through our mortgage banking
operation and six were originated by a bank we acquired in 2007.
(5) Of the twenty period-end requests as of December 31, 2012, all were from Fannie Mae. Effective January 1, 2013, both
Fannie Mae and Freddie Mac allow 60 days to respond to a repurchase request. Failure to respond to a request in a timely
manner could result in the Company having an obligation to repurchase a loan.
58
Indemnified and Repurchased Loan Activity
(dollars in thousands)
Balance, beginning of period
Indemnifications
Repurchases
Principal payoffs
Principal payments
Balance, end of period (1)
For the Years Ended December 31,
2012
Number of Loans
5
3
8
(4)
--
12
Amount (1)
$ 1,084
585
1,941
(1,082)
(242)
$ 2,286
2011
Number of Loans
--
5
1
(1)
--
5
Amount
$ --
1,392
165
(368)
(105)
$1,084
(1) Of the twelve indemnified and repurchased loans, all were performing at December 31, 2012.
Please see Item 7A, “Quantitative and Qualitative Disclosures about Market Risk,” for a discussion of the
strategies we employ to mitigate the interest rate risk associated with our production of one-to-four family loans for
sale.
Loan Origination Analysis
The following table summarizes our production of loans held for investment and loans held for sale in the
years ended December 31, 2012 and 2011:
(dollars in thousands)
Mortgage Loan Originations for Investment:
Multi-family
Commercial real estate
Acquisition, development, and construction
One-to-four family
Total mortgage loan originations for investment
Other Loan Originations for Investment:
Commercial and industrial
Other
Total other loan originations for investment
Total loan originations for investment
Originations for sale
Total loan originations
For the Years Ended December 31,
2011
2012
Amount
Percent
of Total
Amount
Percent
of Total
$ 5,790,590
2,401,043
153,230
104,420
8,449,283
514,250
4,995
519,245
$ 8,968,528
10,925,837
29.11%
12.07
0.77
0.52
42.47
2.58
0.03
2.61
45.08%
54.92
$ 5,761,004
2,361,541
150,363
147
8,273,055
705,794
9,416
715,210
$ 8,988,265
7,151,083
35.69%
14.63
0.93
0.01
51.26
4.37
0.06
4.43
55.69%
44.31
$19,894,365 100.00%
$16,139,348 100.00%
59
Loan Portfolio Analysis
The following table summarizes the composition of our loan portfolio at each year-end for the five years ended December 31, 2012:
(dollars in thousands)
Non-Covered Mortgage Loans:
Multi-family
Commercial real estate
Acquisition, development, and
construction
One-to-four family
Total non-covered mortgage loans
Non-Covered Other Loans:
Commercial and industrial
Other loans
Total non-covered other loans
Loans held for sale
Total non-covered loans
Covered loans
Total loans
Net deferred loan origination costs/(fees)
Allowance for losses on non-covered
loans
Allowance for losses on covered loans
Total loans, net
2012
Percent
of Total
Loans
Percent
of Non-
Covered
Loans
Amount
Amount
2011
Percent
of Total
Loans
Percent
of Non-
Covered
Loans
At December 31,
2010
Percent
of Total
Loans
Percent
of Non-
Covered
Loans
Amount
2009
Percent
of Total
Loans
Percent
of Non-
Covered
Loans
2008
Percent
of Total
Loans
Amount
Amount
$18,595,833
7,436,598
58.55%
23.41
65.30%
26.11
$17,430,628
6,855,244
57.49%
22.61
65.61%
25.81
$16,807,913
5,439,611
57.52%
18.62
67.44% $16,737,721
4,988,649
21.83
58.94%
17.57
71.59% $15,728,264
4,553,550
21.34
70.85%
20.51
397,917
203,435
26,633,783
1.25
0.64
83.85
1.40
0.71
93.52
1.86
0.16
2.02
3.79
2.07
0.18
2.25
4.23
100.00%
10.34
100.00%
590,044
49,880
639,924
1,204,370
$28,478,077
3,284,061
$31,762,138
10,757
(140,948)
(51,311)
$31,580,636
445,671
127,361
24,858,904
599,986
69,907
669,893
1,036,918
$26,565,715
3,753,031
1.47
0.42
81.99
1.98
0.23
2.21
3.42
87.62
12.38
2.26
0.26
2.52
3.90
100.00%
1.68
0.48
93.58
569,537
170,392
22,987,453
1.95
0.58
78.67
2.29
0.68
92.24
666,440
216,078
22,608,888
2.35
0.76
79.62
2.30
0.42
2.72
--
82.34
17.66
2.85
0.92
96.70
778,364
266,307
21,326,485
3.51
1.20
96.07
2.79
0.51
3.30
--
713,099
160,340
873,439
--
3.21
0.72
3.93
--
100.00% $22,199,924 100.00
--
--
2.20
0.29
2.49
4.13
85.29
14.71
100.00%
2.58
0.34
2.92
4.84
653,159
118,445
771,604
--
100.00% $23,380,492
5,016,100
641,663
85,559
727,222
1,207,077
$24,921,752
4,297,869
$29,219,621
(7,181)
(158,942)
(11,903)
$29,041,595
$28,396,592 100.00%
(3,893)
$22,199,924 100.00%
(7,712)
(127,491)
--
$28,265,208
(94,368)
--
$22,097,844
$30,318,746 100.00%
4,021
(137,290)
(33,323)
$30,152,154
60
Outstanding Loan Commitments
At December 31, 2012, we had outstanding loan commitments of $3.0 billion, a year-over-year increase of
$208.5 million. Included in the current year-end amount were commitments to originate loans for investment of $1.4
billion and commitments to originate loans for sale of $1.6 billion, as compared to $1.6 billion and $1.1 billion,
respectively, at the prior year-end. Multi-family and CRE loans together represented $946.6 million of held-for-
investment loan commitments at December 31, 2012, while ADC loans and other loans represented $103.5 million,
and $278.6 million, respectively.
In addition to loan commitments, we had commitments to issue financial stand-by, performance, and
commercial letters of credit totaling $188.9 million at December 31, 2012, as compared to $172.9 million at
December 31, 2011.
Financial stand-by letters of credit primarily are issued for the benefit of other financial institutions or
municipalities, on behalf of certain of our current borrowers, and obligate us to guarantee payment of a specified
financial obligation.
Performance letters of credit are primarily issued for the benefit of local municipalities on behalf of certain of
our borrowers. These borrowers are mainly developers of residential subdivisions with whom we currently have a
lending relationship. Performance letters of credit obligate us to make payments in the event that a specified third
party fails to perform under non-financial contractual obligations.
Commercial letters of credit act as a means of ensuring payment to a seller upon shipment of goods to a buyer.
Although commercial letters of credit are used to effect payment for domestic transactions, the majority are used to
settle payments in international trade. Typically, such letters of credit require the presentation of documents that
describe the commercial transaction, and provide evidence of shipment and the transfer of title.
The fees we collect in connection with the issuance of letters of credit are included in “fee income” in the
Consolidated Statements of Income and Comprehensive Income.
Asset Quality
Non-Covered Loans Held for Investment and Non-Covered Other Real Estate Owned
In 2012, the quality of our assets improved from the year-earlier level as our primary markets continued to
recover, albeit slowly, from the economic crisis, enabling more of our delinquent borrowers to bring their loans
current and facilitating the disposition and sale of certain foreclosed loans and properties.
Specifically, non-performing non-covered loans declined $64.5 million, or 19.8%, year-over-year to $261.3
million at December 31, 2012, representing 0.96% of total non-covered loans at that date. At the prior year-end,
non-performing non-covered loans totaled $325.8 million and represented 1.28% of total non-covered loans.
Non-performing multi-family loans accounted for the bulk of this improvement, having declined $41.6 million
year-over-year to $163.5 million. Non-performing ADC and CRE loans declined $17.8 million and $11.2 million,
respectively, from the balances at December 31, 2011, and non-performing one-to-four family loans declined more
modestly. Non-accrual mortgage loans thus declined $71.5 million year-over-year, to $243.4 million, at
December 31, 2012. The only offset was a $7.0 million increase in the balance of non-accrual other loans, to $18.0
million, primarily reflecting non-performance in the C&I loan portfolio.
The following table sets forth the changes in non-performing loans for the twelve months ended December 31,
2012:
(in thousands)
Balance at December 31, 2011
New non-accrual in the period
Charge-offs
Transferred to other real estate owned
Loan payoffs, including dispositions and principal amortization
Restored to performing status
Balance at December 31, 2012
$ 325,815
128,495
(21,311)
(17,108)
(125,492)
(29,069)
$ 261,330
61
A loan generally is classified as a “non-accrual” loan when it is over 90 days past due. When a loan is placed
on non-accrual status, we cease the accrual of interest owed, and previously accrued interest is reversed and charged
against interest income. At December 31, 2012 and 2011, all of our non-performing loans were non-accrual loans. A
loan is generally returned to accrual status when the loan is less than 90 days past due and we have reasonable
assurance that the loan will be fully collectible.
We monitor non-accrual loans both within and beyond our primary lending area in the same manner.
Monitoring loans generally involves inspecting and re-appraising the collateral properties; holding discussions with
the principals and managing agents of the borrowing entities and/or retained legal counsel, as applicable; requesting
financial, operating, and rent roll information; confirming that hazard insurance is in place or force-placing such
insurance; monitoring tax payment status and advancing funds as needed; and appointing a receiver, whenever
possible, to collect rents, manage the operations, provide information, and maintain the collateral properties.
It is our policy to order updated appraisals for all non-performing loans, irrespective of loan type, that are
collateralized by multi-family buildings, CRE properties, or land, in the event that such a loan is more than 90 days
past due, and if the most recent appraisal on file for the property is more than one year old. Appraisals are ordered
annually until such time as the loan becomes performing and is returned to accrual status. It is not our policy to
obtain updated appraisals for performing loans. However, appraisals may be ordered for performing loans when a
borrower requests an increase in the loan amount, or when a borrower requests an extension of a maturing loan. We
do not analyze current LTV ratios on a portfolio-wide basis.
Non-performing loans are reviewed regularly by management and reported on a monthly basis to the
Mortgage Committee, the Credit Committee, and the Boards of Directors of the Banks. In accordance with our
charge-off policy, non-performing loans are written down to their current appraised values, less certain transaction
costs. Workout specialists from our Loan Workout Unit actively pursue borrowers who are delinquent in repaying
their loans in an effort to collect payment. In addition, outside counsel with experience in foreclosure proceedings
are retained to institute such action with regard to such borrowers.
Properties that are acquired through foreclosure are classified as OREO, and are recorded at the lower of the
unpaid principal balance or fair value at the date of acquisition, less the estimated cost of selling the property. It is
our policy to require an appraisal and environmental assessment of properties classified as OREO before
foreclosure, and to re-appraise the properties on an as-needed basis until they are sold. We dispose of such
properties as quickly and prudently as possible, given current market conditions and the property’s condition.
At December 31, 2012, OREO totaled $29.3 million, reflecting a year-over-year reduction of $55.3 million, or
65.4%. As a result, the balance of non-performing assets improved to $290.6 million at December 31, 2012 from
$410.4 million at December 31, 2011, a year-over-year reduction of 29.2%. Non-performing non-covered assets thus
represented 0.71% and 1.07% of total non-covered assets at December 31, 2012 and 2011, respectively.
The improvement in asset quality also was reflected in the improvement in loans 30 to 89 days past due at
December 31, 2012. Loans 30-89 days past due totaled $27.6 million at that date, in contrast to $111.7 million at
December 31, 2011, primarily reflecting a $52.1 million decline in CRE loans 30 to 89 days past due to $1.7 million
and a $26.8 million decline in multi-family loans 30 to 89 days past due to $19.9 million. In addition, the balance of
30-to-89 days past due ADC loans fell $5.3 million year-over-year, to $1.2 million, while one-to-four family loans
30 to 89 days past due declined a more modest amount.
The reductions in loans 30 to 89 days past due were due to the migration of certain loans to non-accrual status,
certain other loans being brought current, and the general improvement in the local economy. Reflecting the
improvement in non-performing loans and the improvement in loans 30 to 89 days delinquent, total delinquencies
declined $203.8 million, or 39.0%, year-over-year to $318.2 million at December 31, 2012.
To mitigate the potential for credit losses, we underwrite our loans in accordance with credit standards that we
consider prudent. In the case of multi-family and CRE loans, we look first at the consistency of the cash flows being
generated by the property to determine its economic value, and then at the market value of the property that
collateralizes the loan. The amount of the loan is then based on the lower of the two values, with the economic value
more typically used.
The condition of the collateral property is another critical factor. Multi-family buildings and CRE properties
are inspected from rooftop to basement as a prerequisite to approval by management and the Mortgage or Credit
Committee, as applicable. A member of the Mortgage or Credit Committee participates in inspections on multi-
62
family loans to be originated in excess of $4.0 million. Similarly, a member of the Mortgage or Credit Committee
participates in inspections on CRE loans to be originated in excess of $2.5 million. Furthermore, independent
appraisers, whose appraisals are carefully reviewed by our experienced in-house appraisal officers, perform
appraisals on collateral properties. When the amount of the loan exceeds $5.0 million, a second independent
appraisal is performed.
In addition, we work with a select group of mortgage brokers who are familiar with our credit standards and
whose track record with our lending officers is typically greater than ten years. Furthermore, in New York City,
where the majority of the buildings securing our multi-family loans are located, the rents that tenants may be
charged on certain apartments are typically restricted under certain rent-control or rent-stabilization laws. As a
result, the rents that tenants pay for such apartments are generally lower than current market rents. Buildings with a
preponderance of such rent-regulated apartments are less likely to experience vacancies in times of economic
adversity.
To further manage our credit risk, our lending policies limit the amount of credit granted to any one borrower,
and typically require a minimum debt service coverage ratio of 120% for multi-family loans and 130% for CRE
loans. Although we typically will lend up to 75% of the appraised value on multi-family buildings and up to 65% on
commercial properties, the average LTV ratios of such credits at origination were below those amounts at
December 31, 2012. Exceptions to these LTV limitations are reviewed on a case-by-case basis, and require the
approval of the Mortgage or Credit Committee, as applicable.
The repayment of loans secured by commercial real estate is often dependent on the successful operation and
management of the underlying properties. To minimize our credit risk, we originate CRE loans in adherence with
conservative underwriting standards, and require that such loans qualify on the basis of the property’s current
income stream and debt service coverage ratio. The approval of a loan also depends on the borrower’s credit history,
profitability, and expertise in property management.
Although the reasons for a loan to default will vary from credit to credit, our multi-family and CRE loans, in
particular, typically have not resulted in significant losses. Such loans are generally originated at conservative LTV
ratios, as previously stated. Furthermore, in the case of multi-family loans, the cash flows generated by the
properties generally have significant value.
The Boards of Directors also take part in the ADC lending process, with all ADC loans requiring the approval
of the Mortgage or Credit Committee, as applicable. In addition, a member of the pertinent committee participates in
inspections when the loan amount exceeds $2.5 million. ADC loans primarily have been made to well-established
builders who have borrowed from us in the past. We typically lend up to 75% of the estimated as-completed market
value of multi-family and residential tract projects; however, in the case of home construction loans to individuals,
the limit is 80%. With respect to commercial construction loans, which are not our primary focus, we typically lend
up to 65% of the estimated as-completed market value of the property. Credit risk is also managed through the loan
disbursement process. Loan proceeds are disbursed periodically in increments as construction progresses, and as
warranted by inspection reports provided to us by our own lending officers and/or consulting engineers.
Our loan portfolio has been structured to manage our exposure to both credit and interest rate risk. The vast
majority of the loans in our portfolio are intermediate-term credits, with multi-family and CRE loans typically
repaying or refinancing within three to four years of origination, and the duration of ADC loans ranging up to 36
months, with 18 to 24 months more the norm. Furthermore, our multi-family loans are largely secured by buildings
with rent-regulated apartments that tend to maintain a high level of occupancy, regardless of economic conditions in
our marketplace.
C&I loans are typically underwritten on the basis of the cash flows produced by the borrower’s business, and
are generally collateralized by various business assets, including, but not limited to, inventory, equipment, and
accounts receivable. As a result, the capacity of the borrower to repay is substantially dependent on the degree to
which the business is successful. Furthermore, the collateral underlying the loan may depreciate over time, may not
be conducive to appraisal, and may fluctuate in value, based upon the operating results of the business. Accordingly,
personal guarantees are also a normal requirement for C&I loans.
The procedures we follow with respect to delinquent loans are generally consistent across all categories, with
late charges assessed, and notices mailed to the borrower, at specified dates. We attempt to reach the borrower by
telephone to ascertain the reasons for delinquency and the prospects for repayment. When contact is made with a
borrower at any time prior to foreclosure or recovery against collateral property, we attempt to obtain full payment,
63
and will consider a repayment schedule to avoid taking such action. Delinquencies are addressed by our Loan
Workout Unit and every effort is made to collect rather than initiate foreclosure proceedings.
Fair values for all multi-family buildings, CRE properties, and land are determined based on the appraised
value. If an appraisal is more than one year old and the loan is classified as either non-performing or as an accruing
troubled debt restructuring (“TDR”), then an updated appraisal is required to determine fair value. Estimated
disposition costs are deducted from the fair value of the property to determine estimated net realizable value. In the
instance of an outdated appraisal on an impaired loan, we adjust the original appraisal by using a third-party index
value to determine the extent of impairment until an updated appraisal is received.
While we strive to originate loans that will perform fully, changes in the economy and market conditions,
among other factors, can adversely impact a borrower’s ability to repay. In 2012, net charge-offs declined $59.3
million, or 58.9%, year-over-year, to $41.3 million; during this time, the ratio of net charge-offs to average loans
improved to 0.13% from 0.35%. In 2012, multi-family loans represented $26.4 million of total net charge-offs,
while CRE, ADC, and other loans represented $4.9 million, $6.0 million, and $4.0 million, respectively.
Reflecting the $45.0 million provision for losses on non-covered loans recorded in 2012 and the year’s net
charge-offs, our allowance for losses on non-covered loans rose to $140.9 million at the end of December from
$137.3 million at the prior year-end. The respective balances were equivalent to 53.93% and 42.14% of non-
performing non-covered loans.
Although our asset quality improved in 2012, the allowance for losses on non-covered loans was modestly
increased to a level deemed sufficient to cover losses inherent in the loan portfolio. Based upon all relevant and
available information at the end of this December, management believes that the allowance for losses on non-
covered loans was appropriate at that date.
Historically, our level of charge-offs has been relatively low in adverse credit cycles, even when the volume of
non-performing loans has increased. This distinction has largely been due to the nature of our primary lending niche
(multi-family loans collateralized by non-luxury apartment buildings in New York City that feature below-market
rents), and to our conservative underwriting practices that require, among other things, low LTV ratios.
Reflecting the strength of the underlying collateral for these loans and the collateral structure, a relatively
small percentage of our non-performing multi-family loans have resulted in losses over time. Low LTV ratios
provide a greater likelihood of full recovery and reduce the possibility of incurring a severe loss on a credit.
Furthermore, in many cases, low LTV ratios result in our having fewer loans with a potential for the borrower to
“walk away” from the property. Although borrowers may default on loan payments, they have a greater incentive to
protect their equity in the collateral property and to return their loans to performing status.
Given that our CRE loans are underwritten in accordance with underwriting standards that are similar to those
that apply to our multi-family credits, an increase in non-performing CRE loans historically has not resulted in a
corresponding increase in losses on such loans.
In addition, at December 31, 2012, ADC loans, other loans, and one-to-four family loans represented 1.46%,
2.34%, and 0.75%, respectively, of total non-covered loans held for investment, as compared to 1.75%, 2.62%, and
0.50%, respectively, at the prior year-end. At the current year-end, 3.04%, 2.81%, and 5.38% of ADC loans, other
loans, and one-to-four family loans, respectively, were non-performing loans.
In view of these factors, we do not believe that the level of our non-performing non-covered loans will result
in a comparable level of loan losses and will not necessarily require a significant increase in our loan loss provision
or allowance for non-covered loans in any given period. As indicated, non-performing non-covered loans
represented 0.96% of total non-covered loans at December 31, 2012; the ratio of net charge-offs to average loans for
the twelve months ended at that date was 0.13%.
64
The following tables present the number and amount of non-accrual CRE and multi-family loans by
originating bank at December 31, 2012 and December 31, 2011:
As of December 31, 2012
(dollars in thousands)
New York Community Bank
New York Commercial Bank
Total for New York Community Bancorp
As of December 31, 2011
(dollars in thousands)
New York Community Bank
New York Commercial Bank
Total for New York Community Bancorp
Non-Performing
Multi-Family
Loans
Number
73
2
75
Amount
$162,513
947
$163,460
Non-Performing
Multi-Family
Loans
Number
85
2
87
Amount
$204,116
948
$205,064
Number
Non-Performing
Commercial
Real Estate Loans
Amount
$45,418
11,445
$56,863
37
8
45
Number
Non-Performing
Commercial
Real Estate Loans
Amount
$58,437
9,595
$68,032
49
6
55
The following table presents information about our five largest non-performing loans at December 31, 2012,
all of which are non-covered held-for-investment loans:
Loan No. 1
Loan No. 2
Loan No. 3
Loan No. 4
Loan No. 5
Type of Loan
Origination Date
Multi-Family Multi-Family
C&I
C&I
6/29/05
6/30/04
11/30/05
12/17/04
Origination Balance
$41,116,000
$11,250,000
$16,360,000
$8,176,198
Full Commitment Balance
$45,531,750
$11,250,000
$16,360,000
$8,176,198
Balance at December 31, 2012
$41,636,000
$9,371,972
Associated Allowance
None
$7,160
$7,137,625
$1,199,000
$7,100,777
None
CRE
9/11/08
$6,300,000
$6,300,000
$6,197,016
None
Non-Accrual Date
February 2009 December 2012 September 2012 September 2012 May 2010
Origination LTV Ratio
Current LTV Ratio
Last Appraisal
76%
78%
75%
95%
August 2012
October 2012
N/A
N/A
N/A
39%
24%
75%
69%
March 2012
April 2012
The following is a description of the five loans identified in the preceding table:
No. 1 - The borrower is an owner of real estate throughout the nation, and is based in New Jersey. This loan
is collateralized by a complex of four multi-family buildings containing 672 residential and four
commercial units in Washington, D.C. No allocation for the allowance for losses on non-covered
loans was deemed necessary, as determined by using the fair value of collateral method in accordance
with ASC 310-10/40.
No. 2 - The borrower is an owner of real estate and is based in Florida. This loan is collateralized by a multi-
family complex containing 248 residential units in Daytona, Florida. An allocation of $7,160 for the
allowance for losses on non-covered loans was deemed necessary, as determined by using the fair
value of collateral method in accordance with ASC 310-10/40.
No. 3 - The borrower is an owner and operator of fuel terminals and distribution centers and is based in New
York. This loan is collateralized by accounts receivable, inventory, and intangible assets. An
allocation of $1,199,000 for the allowance for losses on non-covered loans was deemed necessary, as
determined by an internally calculated value using an estimated liquidation schedule in accordance
with ASC 310-10/40.
No. 4 - The borrower is an owner and operator of fuel terminals and distribution centers and is based in New
York. This loan is collateralized by a fuel storage facility containing several small industrial buildings
in Brooklyn, New York. No allocation for the allowance for losses on non-covered loans was deemed
necessary, as determined by using the fair value of collateral method in accordance with ASC 310-
10/40.
65
No. 5 - The borrower is an owner of real estate and is based in New York. The loan is collateralized by an
11,000-square foot commercial building with excess development rights in Manhattan. No allocation
for the allowance for losses on non-covered loans was deemed necessary, as determined by using the
fair value of collateral method in accordance with ASC 310-10/40.
Troubled Debt Restructurings
In an effort to proactively manage delinquent loans, we have selectively extended to certain borrowers
concessions such as rate reductions and extension of maturity dates, as well as forbearance agreements. As of
December 31, 2012, loans on which concessions were made with respect to rate reductions and/or extension of
maturity dates amounted to $239.2 million; loans in connection with which forbearance agreements were reached
amounted to $21.1 million. At December 31, 2012, the Company had success rates for multi-family, CRE, and all
other loans (including ADC loans) of 77%, 91%, and 100%, respectively.
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 regarding the likelihood that the
concession will result in the maximum recovery for the Company.
In accordance with GAAP, we are required to account for certain loan modifications or restructurings as
TDRs. In general, a modification or restructuring of a loan constitutes a TDR if we grant a concession to a borrower
experiencing financial difficulty. Loans modified as TDRs are placed on non-accrual status until we determine that
future collection of principal and interest is reasonably assured, which generally requires that the borrower
demonstrate performance according to the restructured terms for at least six consecutive months.
Loans modified as TDRs totaled $260.3 million at December 31, 2012, including accruing loans of $105.0
million and non-accrual loans of $155.3 million.
Analysis of Troubled Debt Restructurings
The following table presents information regarding our TDRs as of December 31, 2012:
(in thousands)
Multi-family
Commercial real estate
Acquisition, development, and construction
Commercial and industrial
One-to-four family
Total
Accruing
$ 66,092
37,457
--
1,463
--
$105,012
Non-Accrual
$114,556
39,127
510
--
1,101
$155,294
Total
$180,648
76,584
510
1,463
1,101
$260,306
The following table presents information regarding our TDRs as of December 31, 2011:
(in thousands)
Multi-family
Commercial real estate
Acquisition, development, and construction
Commercial and industrial
One-to-four family
Total
Accruing
$60,454
3,389
--
--
--
$63,843
Non-Accrual
$166,248
39,054
15,886
667
1,411
$223,266
Total
$226,702
42,443
15,886
667
1,411
$287,109
66
The following table sets forth the changes in TDRs for the twelve months ended December 31, 2012:
(in thousands)
Balance at December 31, 2011
New loans
Charge-offs
Transferred to other real estate owned
Loan payoffs, including dispositions and principal amortization
Loans transferred to accruing troubled debt restructurings
Loans transferred to non-accrual troubled debt restructurings
Balance at December 31, 2012
Accruing Non-Accrual
$223,266
$ 63,843
11,134
53,065
(14,675)
--
--
(261)
(53,437)
(10,847)
(10,733)
--
(1,049)
--
$155,294
$105,012
Total
$287,109
64,199
(14,675)
(261)
(64,284)
(10,733)
(1,049)
$260,306
The year-over-year increase in accruing loans reflected in the preceding table was primarily attributable to a
single CRE loan in the amount of $35.2 million that was placed on accruing TDR status in the second quarter of
2012.
On a limited basis, we may lend additional credit to a borrower after the loan has been placed on non-accrual
status or modified as a TDR if, in management’s judgment, the value of the property after the additional loan
funding is greater than the initial value of the property plus the additional loan funding amount. In 2012, the number
and amounts of such additions were immaterial. In addition, the terms of our restructured loans typically would not
restrict us from cancelling outstanding commitments for other credit facilities in the event of non-payment of the
restructured loan.
Except for the non-accrual loans, loans over 90 days past due and still accruing interest, and TDRs disclosed
in this filing, we did not have any potential problem loans at December 31, 2012 that would have caused
management to have serious doubts as to the ability of a borrower to comply with present loan repayment terms and
that would have resulted in such disclosure if that were the case.
67
Asset Quality Analysis (Excluding Covered Loans, Covered OREO, and Non-Covered Loans Held for Sale)
The following table presents information regarding our consolidated allowance for losses on non-covered
loans, our non-performing non-covered assets, and our non-covered loans 30 to 89 days past due at each year-end in
the five years ended December 31, 2012. Covered loans are considered to be performing due to the application of
the yield accretion method, as discussed elsewhere in this report. Therefore, covered loans are not reflected in the
amounts or ratios provided in this table.
(dollars in thousands)
Allowance for Losses on Non-Covered Loans:
Balance at beginning of year
Provision for losses on non-covered loans
Charge-offs:
Multi-family
Commercial real estate
Acquisition, development, and construction
One-to-four family
Other loans
Total charge-offs
Recoveries
Net charge-offs
Balance at end of year
Non-Performing Non-Covered Assets:
Non-accrual non-covered mortgage loans:
Multi-family
Commercial real estate
Acquisition, development, and construction
One-to-four family
Total non-accrual non-covered mortgage loans
Other non-accrual non-covered loans
Loans 90 days or more past due and still
accruing interest
Total non-performing non-covered loans (1)
Other real estate owned (2)
Total non-performing non-covered assets
Asset Quality Measures:
Non-performing non-covered loans to total non-
2012
2011
2010
2009
2008
At December 31,
$137,290
45,000
$ 158,942
79,000
$127,491
91,000
$ 94,368
63,000
$92,794
7,700
(27,939)
(5,046)
(5,974)
(574)
(6,685)
(46,218)
4,876
(41,342)
(71,187)
(11,900)
(9,153)
(1,208)
(12,462)
(105,910)
5,258
(100,652)
(27,042)
(3,359)
(9,884)
(931)
(19,569)
(60,785)
1,236
(59,549)
(15,261)
(530)
(5,990)
(322)
(7,828)
(29,931)
54
(29,877)
(175)
(16)
(2,517)
--
(3,460)
(6,168)
42
(6,126)
$94,368
$140,948
$ 137,290
$158,942
$127,491
$163,460
56,863
12,091
10,945
243,359
17,971
--
$261,330
29,300
$290,630
$205,064
68,032
29,886
11,907
314,889
10,926
$327,892
162,400
91,850
17,813
599,955
24,476
$393,113
70,618
79,228
14,171
557,130
20,938
$ 53,153
12,785
24,839
11,155
101,932
11,765
--
$325,815
84,567
$410,382
--
$624,431
28,066
$652,497
--
$578,068
15,205
$593,273
--
$113,697
1,107
$114,804
covered loans
0.96%
1.28%
2.63%
2.47%
0.51%
Non-performing non-covered assets to total non-
covered assets
Allowance for losses on non-covered loans to
0.71
1.07
1.77
1.41
0.35
non-performing non-covered loans
53.93
42.14
25.45
22.05
83.00
Allowance for losses on non-covered loans to
total non-covered loans
Net charge-offs during the period to average
loans outstanding during the period
Loans 30-89 Days Past Due:
Multi-family
Commercial real estate
Acquisition, development, and construction
One-to-four family
Other loans
Total loans 30-89 days past due (3)
0.52
0.13
$19,945
1,679
1,178
2,645
2,138
$27,585
0.54
0.35
0.67
0.21
0.55
0.13
0.43
0.03
$ 46,702
53,798
6,520
2,712
1,925
$111,657
$121,188
8,207
5,194
5,723
10,728
$151,040
$155,790
42,324
48,838
5,019
21,036
$273,007
$ 37,266
29,090
21,380
4,885
10,170
$102,791
(1) The December 31, 2012, 2011, 2010, and 2009 amounts exclude loans 90 days or more past due of $312.6 million, $347.4
million, $360.8 million, and $56.2 million, respectively, that are covered by FDIC loss sharing agreements.
(2) The December 31, 2012, 2011, and 2010 amounts exclude OREO totaling $45.1 million, $71.4 million, and $62.4 million,
respectively, that is covered by FDIC loss sharing agreements.
(3) The December 31, 2012, 2011, 2010, and 2009 amounts exclude loans 30 to 89 days past due of $81.2 million, $112.0
million, $130.5 million, and $110.1 million, respectively, that are covered by FDIC loss sharing agreements.
68
Summary of the Allowance for Losses on Non-Covered Loans
The following table sets forth the allocation of the consolidated allowance for losses on non-covered loans at each year-end in the five years ended
December 31, 2012. At December 31, 2008, all of our loans were non-covered loans.
2012
2011
2010
2009
2008
Percent of
Loans in
Each
Category
to Total
Non-
Covered
Loans Held
for
Percent of
Loans in
Each
Category
to Total
Non-
Covered
Loans Held
for
Percent of
Loans in
Each
Category
to Total
Non-
Covered
Loans Held
for
Percent of
Loans in
Each
Category
to Total
Non-
Covered
Loans Held
for
Investment Amount
$ 66,745
68.18%
43,262
27.27
Investment Amount
$ 75,314
42,145
68.28%
26.85
Investment Amount
$ 75,567
32,079
70.88%
22.94
Investment Amount
$43,908
71.59%
21.34
29,622
1.46
0.75
2.34
100.00%
11,016
972
15,295
$137,290
1.75
0.50
2.62
100.00%
20,302
1,190
19,991
$158,942
2.40
0.72
3.06
100.00%
8,276
1,530
10,039
$127,491
2.85
0.92
3.30
100.00%
10,289
1,685
8,864
$94,368
Percent of
Loans in
Each
Category
to Total
Loans
70.85%
20.51
3.51
1.20
3.93
100.00%
(dollars in thousands)
Multi-family loans
Commercial real estate loans
Acquisition, development,
and construction loans
One-to-four family loans
Other loans
Total loans
Amount
$ 79,618
38,426
8,418
1,519
12,967
$140,948
The preceding allocation is based upon an estimate of various factors, as discussed in “Critical Accounting Policies” earlier in this report, and a different
allocation methodology may be deemed to be more appropriate in the future. In addition, it should be noted that the portion of the allowance for losses on non-
covered loans allocated to each non-covered loan category does not represent the total amount available to absorb losses that may occur within that category,
since the total loan loss allowance is available for the entire non-covered loan portfolio.
69
Covered Loans and Covered Other Real Estate Owned
The credit risk associated with the assets acquired in our AmTrust and Desert Hills transactions has been
substantially mitigated by our loss sharing agreements with the FDIC. Under the terms of the loss sharing
agreements, the FDIC agreed to reimburse us for 80% of losses (and share in 80% of any recoveries) up to a
specified threshold with respect to the loans and OREO acquired in the transactions, and to reimburse us for 95% of
any losses (and share in 95% of any recoveries) with respect to the acquired assets beyond that threshold. The loss
sharing (and reimbursement) agreements applicable to one-to-four family mortgage loans and HELOCs are effective
for a ten-year period from the date of acquisition. Under the loss sharing agreements applicable to other loans and
OREO, the FDIC will reimburse us for losses for a five-year period from the date of acquisition; the period for
sharing in recoveries on other loans and OREO extends for a period of eight years.
We consider our covered loans to be performing due to the application of the yield accretion method under
ASC 310-30, which allows us to aggregate credit-impaired loans acquired in the same fiscal quarter into one or more
pools, provided that the loans have common risk characteristics. A pool is then accounted for as a single asset with a
single composite interest rate and an aggregate expectation of cash flows. Accordingly, loans that may have been
classified as non-performing loans by AmTrust or Desert Hills were no longer classified as non-performing at the
respective dates of acquisition because we believed at that time that we would fully collect the new carrying value of
those loans. The new carrying value represents the contractual balance, reduced by the portion expected to be
uncollectible (referred to as the “non-accretable difference”) and by an accretable yield (discount) that is recognized
as interest income. It is important to note that management’s judgment is required in reclassifying loans subject to
ASC 310-30 as performing loans, and is dependent on having a reasonable expectation about the timing and amount
of the cash flows to be collected, even if a loan is contractually past due.
In connection with the AmTrust and Desert Hills loss sharing agreements, we established FDIC loss share
receivables of $740.0 million and $69.6 million, which were the acquisition date fair values of the respective loss
sharing agreements (i.e., the expected reimbursements from the FDIC over the terms of the agreements). The loss
share receivables may increase if the losses increase, and may decrease if the losses fall short of the expected
amounts. Increases in estimated reimbursements will be recognized in income in the same period that they are
identified and that the allowance for losses on the related covered loans is recognized. In 2012, indemnification
income of $14.4 million was recorded in “non-interest income” as a result of an increase in expected
reimbursements from the FDIC under our loss sharing agreements. This benefit partially offset a provision for losses
on covered loans of $18.0 million.
Decreases in estimated reimbursements from the FDIC, if any, will be recognized in income prospectively
over the life of the related covered loans (or, if shorter, over the remaining term of the loss sharing agreement).
Related additions to the accretable yield on the covered loans will be recognized in income prospectively over the
lives of the loans. Gains and recoveries on covered assets will offset losses, or be paid to the FDIC at the applicable
loss share percentage at the time of recovery.
The loss share receivables may also increase due to accretion, or decrease due to amortization. In 2012, we
recorded net amortization of $2.1 million and in 2011 we recorded net accretion of $24.0 million. Accretion of the
FDIC loss share receivable relates to the difference between the discounted, versus the undiscounted, expected cash
flows of covered loans subject to the FDIC loss sharing agreements. Amortization occurs when the expected cash
flows from the covered loan portfolio improves, thus reducing the amounts receivable from the FDIC. These cash
flows were discounted to reflect the uncertainty of the timing and receipt of the loss sharing reimbursements from
the FDIC. In the twelve months ended December 31, 2012, we received FDIC reimbursements of $141.0 million, as
compared to $160.5 million in the prior year.
70
Asset Quality Analysis (Including Covered Loans and Covered OREO)
The following table presents information regarding our non-performing assets and loans past due at
December 31, 2012 and December 31, 2011, including covered loans and covered OREO (collectively, “covered
assets”):
At or For the Year Ended December 31,
(dollars in thousands)
Covered Loans 90 Days or More Past Due:
Multi-family
Commercial real estate
Acquisition, development, and construction
One-to-four family
Other
Total covered loans 90 days or more past due
Covered other real estate owned
Total covered non-performing assets
Total Non-Performing Assets (including covered assets):
Non-performing loans:
Multi-family
Commercial real estate
Acquisition, development, and construction
One-to-four family
Other
Total non-performing loans
Other real estate owned
Total non-performing assets (including covered assets)
Asset Quality Ratios (including covered loans and the
allowance for losses on covered loans):
Total non-performing loans to total loans
Total non-performing assets to total assets
Allowance for loan losses to non-performing loans
Allowance for loan losses to total loans
Covered Loans 30-89 Days Past Due:
Multi-family
Commercial real estate
Acquisition, development, and construction
One-to-four family
Other loans
Total covered loans 30-89 days past due
Total Loans 30-89 Days Past Due (including covered loans):
Multi-family
Commercial real estate
Acquisition, development, and construction
One-to-four family
Other loans
Total loans 30-89 days past due (including covered loans)
2012
$
--
2,501
1,249
297,265
11,558
312,573
45,115
$357,688
$163,460
59,364
13,340
308,210
29,529
573,903
74,415
$648,318
1.88%
1.47
33.50
0.63
$ 517
137
463
75,129
4,940
$81,186
$ 20,462
1,816
1,641
77,774
7,078
$108,771
2011
$
161
8,599
5,082
314,821
18,779
347,442
71,400
$418,842
$205,225
76,631
34,968
326,728
29,705
673,257
155,967
$829,224
2.30%
1.97
25.34
0.58
$
--
1,054
272
103,495
7,168
$111,989
$ 46,702
54,852
6,792
106,207
9,093
$223,646
71
Geographical Analysis of Total Non-Performing Loans (Covered and Non-Covered)
The following table presents a geographical analysis of our non-performing loans at December 31, 2012:
(in thousands)
New York
Florida
New Jersey
Washington, D.C.
California
Connecticut
Arizona
Ohio
Nevada
Massachusetts
All other states
Total non-performing loans
Securities
$172,233
118,807
51,656
41,865
31,966
21,654
19,162
19,004
15,435
13,827
68,294
$573,903
At December 31, 2012, securities represented $4.9 billion, or 11.1%, of total assets, as compared to $4.5
billion, or 10.8%, of total assets at the prior year-end.
The investment policies of the Company and the Banks are established by the respective Boards of Directors
and implemented by their respective Investment Committees, in concert with the respective Asset and Liability
Management Committees. The Investment Committees generally meet quarterly or on an as-needed basis to review
the portfolios and specific capital market transactions. In addition, the securities portfolios are reviewed monthly by
the Boards of Directors as a whole. Furthermore, the policies guiding the Company’s and the Banks’ investments are
reviewed at least annually by the respective Investment Committees, as well as by the respective Boards. While the
policies permit investment in various types of liquid assets, neither the Company nor the Banks currently maintain a
trading portfolio.
Our general investment strategy is to purchase liquid investments with various maturities to ensure that our
overall interest rate risk position stays within the required limits of our investment policies. We generally limit our
investments to GSE obligations (defined as GSE certificates; GSE collateralized mortgage obligations, or “CMOs”;
and GSE debentures). At December 31, 2012 and 2011, GSE obligations represented 91.3% and 93.7%,
respectively, of total securities. The remainder of the portfolio was comprised of private label CMOs, corporate
bonds, trust preferred securities, corporate equities, and municipal obligations. We have no investment securities
that are backed by subprime or Alt-A loans.
Depending on management’s intent at the time of purchase, securities are classified as either “available for
sale” or “held to maturity.” While available-for-sale securities are intended to generate earnings, they also represent
a significant source of cash flows and liquidity for future loan production, the reduction of higher-cost funding, and
general operating activities. These cash flows stem from the repayment of principal and interest, in addition to the
sale of such securities. Held-to-maturity securities also generate cash flows from repayments and serve as a source
of earnings.
Securities that management intends to hold for an indefinite period of time are classified as available for sale.
A decision to purchase or sell these securities is based on economic conditions, including changes in interest rates,
liquidity, and our asset and liability management strategy. At December 31, 2012, available-for-sale securities
represented $429.3 million, or 8.7%, of total securities, down from $724.7 million, or 16.0%, at the prior year-end.
Included in the respective year-end amounts were mortgage-related securities of $177.3 million and $192.0 million,
and other securities of $252.0 million and $532.7 million, respectively.
Primarily reflecting calls of agency debentures that occurred in 2012, the estimated weighted average life of
the available-for-sale securities portfolio rose to 9.4 years at December 31, 2012 from 3.0 years at December 31,
2011. Held-to-maturity securities, which are securities that management has the positive intent to hold to maturity,
represented $4.5 billion, or 91.3% of total securities at December 31, 2012, as compared to $3.8 billion, or 84.0%, of
total securities at the prior year-end. At the current year-end, the fair value of securities held to maturity represented
104.94% of their carrying value, as compared to 103.94% at December 31, 2011. Mortgage-related securities
accounted for $3.2 billion and $3.0 billion of securities held to maturity at the end of December 2012 and 2011,
72
while other securities represented $1.3 billion and $819.6 million at the respective year-ends. Included in the year-
end 2012 and 2011 amounts were GSE obligations of $4.3 billion and $3.6 billion; capital trust notes of $109.9
million and $131.6 million; and corporate bonds of $72.5 million and $54.8 million, respectively. The estimated
weighted average lives of the held-to-maturity securities portfolio were 4.6 years and 4.7 years at the corresponding
dates.
Federal Home Loan Bank Stock
The Community Bank and the Commercial Bank are members of the FHLB-NY, one of 12 regional FHLBs
comprising the FHLB system. Each regional FHLB manages its customer relationships, while the 12 FHLBs use
their combined size and strength to obtain their necessary funding at the lowest possible cost.
As members of the FHLB-NY, the Community Bank and the Commercial Bank are required to acquire and
hold shares of its capital stock. In addition, the Community Bank acquired shares of the capital stock of the FHLB-
Cincinnati and the FHLB-San Francisco in connection with the AmTrust and Desert Hills acquisitions, respectively.
At December 31, 2012, the Community Bank held $458.8 million of FHLB stock, including $433.6 million of
stock in the FHLB-NY, $23.1 million of stock in the FHLB-Cincinnati, and $2.1 million of stock in the FHLB-San
Francisco. The Commercial Bank had $10.3 million of FHLB stock at December 31, 2012, all of which was with the
FHLB-NY. FHLB stock continued to be valued at par, with no impairment required, at that date.
In 2012 and 2011, dividends from the FHLB to the Community Bank totaled $19.9 million and $19.5 million,
respectively. Dividends from the FHLB-NY to the Commercial Bank were $387,000 and $374,000, respectively, in
the corresponding years.
Bank-Owned Life Insurance
At December 31, 2012, our investment in bank-owned life insurance (“BOLI”) was $867.3 million, as
compared to $769.0 million at December 31, 2011. The increase reflects the purchase of additional BOLI totaling
$80.0 million in the fourth quarter, and the rise in the cash surrender value of the underlying policies over the course
of the year.
BOLI is recorded at the total cash surrender value of the policies in the Consolidated Statements of Condition,
and the income generated by the increase in the cash surrender value of the policies is recorded in “non-interest
income” in the Consolidated Statements of Income and Comprehensive Income.
FDIC Loss Share Receivable
In connection with our loss sharing agreements with the FDIC with respect to the loans and OREO acquired in
the AmTrust and Desert Hills acquisitions, we recorded FDIC loss share receivables of $566.5 million and $695.2
million, respectively, at December 31, 2012 and 2011. The loss share receivables represent the present values of the
reimbursements we expected to receive under the combined loss sharing agreements at those dates.
Goodwill and Core Deposit Intangibles
We record goodwill and core deposit intangibles (“CDI”) in our Consolidated Statements of Condition in
connection with our various business combinations.
Goodwill totaled $2.4 billion at both December 31, 2012 and 2011. Reflecting amortization, CDI declined
$19.6 million year-over-year, to $32.0 million.
Sources of Funds
The Parent Company (i.e., the Company on an unconsolidated basis) has four primary funding sources for the
payment of dividends, share repurchases, and other corporate uses: dividends paid to the Company by the Banks;
capital raised through the issuance of stock; funding raised through the issuance of debt instruments; and repayments
of, and income from, investment securities.
On a consolidated basis, our funding primarily stems from a combination of the following sources: the
deposits we gather through our branch network or acquire in business combinations, as well as brokered deposits;
borrowed funds, primarily in the form of wholesale borrowings; the cash flows generated through the repayment and
sale of loans; and the cash flows generated through the repayment and sale of securities.
73
Loan repayments and sales totaled $18.5 billion in 2012, as compared to $15.0 billion in 2011. Repayments
and sales accounted for $7.7 billion and $10.8 billion, respectively, of the 2012 total and for $7.7 billion and $7.3
billion, respectively, of the year-earlier amount. The increase in cash flows from sales is indicative of the
aforementioned increase in the production of one-to-four family loans for sale during the year.
In 2012, cash flows from the repayment and sale of securities respectively totaled $2.9 billion and $822.6
million, while purchases of securities totaled $4.1 billion over the course of the year. In 2011, the cash flows from
the repayment and sale of securities totaled $3.0 billion and $1.1 billion, respectively, and were partially offset by
purchases of securities totaling $3.9 billion.
Consistent with our business model, the cash flows from loans and securities were primarily deployed into
loan production and, to a much lesser extent, the purchase of GSE obligations and other securities.
Deposits
Our ability to retain and attract deposits depends on numerous factors, including customer satisfaction, the
rates of interest we pay, the types of products we offer, and the attractiveness of their terms. There are times we may
choose not to compete aggressively for deposits, depending on our access to deposits through acquisitions, the
availability of lower-cost funding sources, the competitiveness of the market and its impact on pricing, and our need
for such deposits to fund our loan demand.
While the vast majority of our deposits have been acquired through business combinations or gathered
through our branch network, our mix of deposits has also included brokered deposits. Depending on the availability
and pricing of such wholesale funding sources, we typically refrain from pricing our retail deposits at the higher end
of the market, in order to contain or reduce our funding costs.
Deposits rose from $22.3 billion at December 31, 2011 to $24.9 billion at December 31, 2012. While some of
the growth in deposits was organic in nature, the increase also reflects deposits assumed in the aforementioned
transaction with Aurora Bank. At the time of the transaction, we acquired $2.2 billion of deposits, including $1.4
billion of brokered CDs, $766.7 million of retail CDs, and $11.3 million of retail money market accounts. At
December 31, 2012, the Aurora Bank transaction accounted for $1.3 billion of total deposits, including brokered
CDs of $793.8 million. We had no brokered CDs at the prior year-end.
CDs rose $1.7 billion year-over-year, to $9.1 billion, representing 36.7% of total deposits at December 31,
2012. NOW and money market accounts represented $8.8 billion of total deposits at that date, reflecting a modest
year-over-year increase, while savings accounts and non-interest-bearing deposits rose more meaningfully. At
December 31, 2012, savings accounts and non-interest-bearing deposits respectively totaled $4.2 billion and $2.8
billion, reflecting year-over-year increases of $260.1 million and $517.5 million.
Included in the year-end balances of money market accounts and non-interest-bearing deposits were brokered
deposits of $3.7 billion and $189.2 million, as compared to $3.8 billion and $61.6 million, respectively, at December
31, 2011.
Borrowed Funds
Borrowed funds consist primarily of wholesale borrowings (i.e., FHLB advances, repurchase agreements, and
federal funds purchased); junior subordinated debentures; and other borrowings (consisting of preferred stock of
subsidiaries and senior notes). At December 31, 2012, borrowed funds totaled $13.4 billion, reflecting a $530.2
million reduction from the year-earlier amount.
Wholesale Borrowings
Wholesale borrowings declined $371.2 million year-over-year, to $13.1 billion, representing 29.6% of total
assets at December 31, 2012. FHLB advances accounted for $8.8 billion of the year-end 2012 total, and were down
$471.2 million from the year-earlier amount. In addition to FHLB-NY advances, the year-end 2012 balance included
FHLB-Cincinnati advances of $602.4 million that were acquired in the AmTrust acquisition in December 2009.
The Community Bank and the Commercial Bank are both members of, and have lines of credit with, the
FHLB-NY. Pursuant to blanket collateral agreements with the Banks, our FHLB advances and overnight advances
are secured by pledges of certain eligible collateral in the form of loans and securities.
74
Also included in wholesale borrowings at December 31, 2012 were repurchase agreements of $4.1 billion,
consistent with the balance at the prior year-end. Repurchase agreements are contracts for the sale of securities
owned or borrowed by the Banks with an agreement to repurchase those securities at agreed-upon prices and dates.
Our repurchase agreements are primarily collateralized by GSE obligations, and may be entered into with the
FHLB-NY or certain brokerage firms. The brokerage firms we utilize are subject to an ongoing internal financial
review to ensure that we borrow funds only from those dealers whose financial strength will minimize the risk of
loss due to default. In addition, a master repurchase agreement must be executed and on file for each of the
brokerage firms we use.
In late December 2012, we began the process of repositioning certain wholesale borrowings. Reflecting the
repositioning and the redemption of certain trust preferred securities at the end of December, we reduced the
weighted average interest rate on $6.0 billion of borrowed funds by 117 basis points, and extended the weighted
average call and maturity dates by approximately four years. At December 31, 2012, $8.0 billion of our wholesale
borrowings were callable in 2013, including $2.4 billion that were subsequently repositioned in January 2013. Given
the current interest rate environment, we do not expect our callable wholesale borrowings to be called.
Junior Subordinated Debentures
Reflecting the redemption of certain trust preferred securities in the fourth quarter, as mentioned, junior
subordinated debentures declined $69.0 million from the balance at December 31, 2011 to $357.9 million at
December 31, 2012.
Other Borrowings
Other borrowings declined from $94.3 million at December 31, 2011 to $4.3 million at December 31, 2012.
The reduction reflects the maturity of fixed rate senior notes that had been issued in 2008 under the Temporary
Liquidity Guarantee Program on June 22, 2012.
Please see Note 7, “Borrowed Funds,” in Item 8, “Financial Statements and Supplementary Data” for a further
discussion of our wholesale borrowings, junior subordinated debentures, and other borrowings.
Liquidity, Contractual Obligations and Off-Balance Sheet Commitments, and Capital Position
Liquidity
We manage our liquidity to ensure that cash flows are sufficient to support our operations, and to compensate
for any temporary mismatches between sources and uses of funds caused by variable loan and deposit demand.
We monitor our liquidity daily to ensure that sufficient funds are available to meet our financial obligations.
Our most liquid assets are cash and cash equivalents, which totaled $2.4 billion and $2.0 billion, respectively, at
December 31, 2012 and 2011. In 2012, as in the prior year, our portfolios of loans and securities were meaningful
sources of liquidity, with cash flows from the repayment and sale of loans totaling $18.5 billion and cash flows from
the repayment and sale of securities totaling $3.7 billion.
Additional liquidity stems from the deposits we gather through our branches or acquire in business
combinations, and from our use of wholesale funding sources, including brokered deposits and wholesale
borrowings. We also have access to the Banks’ approved lines of credit with various counterparties, including the
FHLB-NY. The availability of these wholesale funding sources is generally based on the amount of mortgage loan
collateral available under a blanket lien we have pledged to the respective institutions and, to a lesser extent, the
amount of available securities that may be pledged to collateralize our borrowings. At December 31, 2012, our
available borrowing capacity with the FHLB-NY was $5.8 billion. In addition, the Community Bank and the
Commercial Bank had $426.6 million in available-for-sale securities, combined, at that date.
Furthermore, in the fourth quarter of 2012, the Community Bank entered into an agreement with the Federal
Reserve Bank of New York (the “FRB-NY”) that will enable it to access the discount window as a further means of
enhancing its liquidity if need be. In connection with this agreement, the Community Bank has pledged certain loans
to collateralize any funds it may borrow. While the Community Bank had not yet borrowed any funds from the
FRB-NY at the end of December, the maximum amount it could borrow at that date was $166.0 million.
Our primary investing activity is loan production, and in 2012, the volume of loans originated for sale and for
investment totaled $19.9 billion. During this time, the net cash used in investing activities totaled $1.7 billion. Our
75
financing activities provided net cash of $1.6 billion and our operating activities provided net cash of $576.0
million.
CDs due to mature in one year or less from December 31, 2012 totaled $5.6 billion, representing 61.2% of
total CDs at that date. Our ability to retain these CDs and to attract new deposits depends on numerous factors,
including customer satisfaction, the rates of interest we pay on our deposits, the types of products we offer, and the
attractiveness of their terms. However, there are times when we may choose not to compete for deposits, depending
on the availability of lower-cost funding, the competitiveness of the market and its impact on pricing, and our need
for such deposits to fund loan demand.
On a stand-alone basis, the Company (the “Parent Company”) is a separate legal entity from each of the Banks
and must provide for its own liquidity. In addition to operating expenses and any share repurchases, the Parent
Company is responsible for paying any dividends declared to our shareholders. As a Delaware corporation, the
Parent Company is able to pay dividends either from surplus or, in case there is no surplus, from net profits for the
fiscal year in which the dividend is declared and/or the preceding fiscal year. In addition, the Parent Company is not
required to obtain prior Federal Reserve approval to pay a dividend unless the declaration and payment of a dividend
could raise supervisory concerns about the safe and sound operation of the Company and the Banks, where the
dividend declared for a period is not supported by earnings for that period, or where the Company plans to declare
an increase in its dividend.
The Parent Company’s ability to pay dividends may depend, in part, upon dividends it receives from the
Banks. The ability of the Community Bank and the Commercial Bank to pay dividends and other capital
distributions to the Parent Company is generally limited by New York State banking law and regulations, and by
certain regulations of the FDIC. In addition, the Superintendent of the New York State Department of Financial
Services (the “Superintendent”), the FDIC, and the Federal Reserve, for reasons of safety and soundness, may
prohibit the payment of dividends that are otherwise permissible by regulations.
Under New York State Banking Law, a New York State-chartered stock-form savings bank or commercial
bank may declare and pay dividends out of its net profits, unless there is an impairment of capital. However, the
approval of the Superintendent is required if the total of all dividends declared in a calendar year would exceed the
total of a bank’s net profits for that year, combined with its retained net profits for the preceding two years. In 2012,
the Banks paid dividends totaling $485.0 million to the Parent Company, leaving $301.8 million that they could
dividend to the Parent Company without regulatory approval at year-end. Additional sources of liquidity available to
the Parent Company at December 31, 2012 included $113.7 million in cash and cash equivalents and $2.7 million of
available-for-sale securities. If either of the Banks were to apply to the Superintendent for approval to make a
dividend or capital distribution in excess of the dividend amounts permitted under the regulations, there can be no
assurance that such application would be approved.
Contractual Obligations and Off-Balance Sheet Commitments
In the normal course of business, we enter into a variety of contractual obligations in order to manage our
assets and liabilities, fund loan growth, operate our branch network, and address our capital needs.
For example, we offer CDs with contractual terms to our customers, and borrow funds under contract from the
FHLB and various brokerage firms. These contractual obligations are reflected in the Consolidated Statements of
Condition under “deposits” and “borrowed funds,” respectively. At December 31, 2012, we had CDs of $9.1 billion
and long-term debt (defined as borrowed funds with an original maturity in excess of one year) of $12.2 billion.
We also are obligated under certain non-cancelable operating leases on the buildings and land we use in
operating our branch network and in performing our back-office responsibilities. These obligations are not included
in the Consolidated Statements of Condition and totaled $135.5 million at December 31, 2012.
76
Contractual Obligations
The following table sets forth the maturity profile of the aforementioned contractual obligations:
(in thousands)
One year or less
One to three years
Three to five years
More than five years
Total
Certificates of
Deposit
$5,581,619
2,865,483
619,671
54,141
$9,120,914
Long-Term Debt (1)
$ 785,265
804,565
3,918,517
6,671,844
$12,180,191
Operating
Leases
$ 24,701
40,153
30,060
40,547
$135,461
Total
$ 6,391,585
3,710,201
4,568,248
6,766,532
$21,436,566
(1) Includes FHLB advances, repurchase agreements, junior subordinated debentures, and preferred stock of subsidiaries.
At December 31, 2012, we had contractual obligations to purchase $22.4 million of GSE securities. We also
had commitments to extend credit in the form of mortgage and other loan originations. These off-balance sheet
commitments consist of agreements to extend credit, as long as there is no violation of any condition established in
the contract under which the loan is made. Commitments generally have fixed expiration dates or other termination
clauses and may require payment of a fee.
At December 31, 2012, commitments to originate mortgage loans totaled $2.7 billion, including $1.6 billion of
one-to-four family loans held for sale. Commitments to originate other loans totaled $278.6 million, including
unadvanced lines of credit. The majority of our loan commitments were expected to be funded within 90 days of
year-end. We also had off-balance sheet commitments to issue commercial, performance, and financial stand-by
letters of credit of $132.3 million, $13.1 million, and $43.5 million, respectively.
The following table sets forth our off-balance sheet commitments relating to outstanding loan commitments
and letters of credit at December 31, 2012:
(in thousands)
Mortgage Loan Commitments:
Multi-family and commercial real estate
Acquisition, development, and construction
One-to-four family held for sale
Total mortgage loan commitments
Other loan commitments
Total loan commitments
Commercial, performance, and financial stand-by letters of credit
Total commitments
$ 946,630
103,534
1,622,463
$2,672,627
278,644
$2,951,271
188,933
$3,140,204
Based upon the current strength of our liquidity position, we expect that our funding will be sufficient to fulfill
these obligations and commitments when they are due.
Derivative Financial Instruments
We use various financial instruments, including derivatives, in connection with our strategies to reduce market
risk resulting from changes in interest rates. Our derivative financial instruments consist of financial forward and
futures contracts, IRLCs, swaps, and options. These derivatives relate to our mortgage banking operation, MSRs,
and other risk management activities, and seek to mitigate or reduce our exposure to losses from adverse changes in
interest rates. These activities will vary in scope based on the level and volatility of interest rates, the types of assets
held, and other changing market conditions. At December 31, 2012, we held derivative financial instruments with a
notional value of $5.8 billion. (Please see Note 14, “Derivative Financial Instruments,” in Item 8, “Financial
Statements and Supplementary Data” for a further discussion of our use of such financial instruments.)
Capital Position
Notwithstanding the distribution of cash dividends totaling $438.5 million, our stockholders’ equity rose $90.6
million year-over-year, to $5.7 billion, and our tangible stockholders’ equity rose $110.2 million to $3.2 billion, at
December 31, 2012. (Please see the discussion and reconciliations of stockholders’ equity and tangible stockholders’
equity, total assets and tangible assets, and the related capital measures that appear on the last page of this discussion
and analysis of financial condition and results of operations.)
77
At December 31, 2012, stockholders’ equity represented 12.81% of total assets and a book value per share of
$12.88. At the prior year-end, stockholders’ equity represented 13.24% of total assets and a book value per share of
$12.73. Our calculations of book value per share are based on the number of shares outstanding at the end of each
December: 439,050,966 shares at December 31, 2012 and 437,344,796 shares at December 31, 2011. (Please see the
definition of book value per share that appears in the Glossary earlier in this report.)
We calculate tangible stockholders’ equity by subtracting the amount of goodwill and CDI recorded at the end
of a period from the amount of stockholders’ equity recorded at the same date. At December 31, 2012, we recorded
goodwill of $2.4 billion, consistent with the balance at the prior year-end. CDI totaled $32.0 million at the end of
this December, reflecting a $19.6 million reduction from the balance at December 31, 2011.
At December 31, 2012, tangible stockholders’ equity represented 7.65% of tangible assets and a tangible book
value per share of $7.26. By comparison, tangible stockholders’ equity represented 7.78% of tangible assets and a
tangible book value per share of $7.04 at December 31, 2011. Excluding AOCL from the calculations, the ratio of
adjusted tangible stockholders’ equity to adjusted tangible assets was 7.79% at December 31, 2012 and 7.95% at the
prior year-end. (Please see the discussion and reconciliations of our GAAP and non-GAAP capital measures that
appear on the last page of this discussion and analysis of financial condition and results of operations.)
AOCL fell $10.2 million year-over-year, to $61.7 million, as the net unrealized gain on available-for-sale
securities rose $11.3 million year-over-year, to $12.6 million, far exceeding the impact of a $1.2 million increase in
the net unrealized loss on pension and post-retirement obligations, net of tax.
At December 31, 2012, our capital measures continued to exceed the minimum federal requirements for a
bank holding company, as reflected in the following table. The table sets forth our total risk-based, Tier 1 risk-based,
and leverage capital amounts and ratios on a consolidated basis at December 31, 2012 and 2011, as well as the
respective minimum regulatory capital requirements:
Regulatory Capital Analysis
At December 31, 2012
(dollars in thousands)
Total risk-based capital
Tier 1 risk-based capital
Leverage capital
Actual
Amount
$3,800,221
3,605,671
3,605,671
Ratio
14.11%
13.38
8.84
Minimum
Required Ratio
8.00%
4.00
4.00
At December 31, 2011
(dollars in thousands)
Total risk-based capital
Tier 1 risk-based capital
Leverage capital
Actual
Amount
$3,750,915
3,580,302
3,580,302
Ratio
14.23%
13.59
9.09
Minimum
Required Ratio
8.00%
4.00
4.00
In addition, the capital ratios for the Community Bank and the Commercial Bank continued to exceed the
minimum levels required for classification as “well capitalized” institutions at December 31, 2012, as defined under
the Federal Deposit Insurance Corporation Improvement Act of 1991, and as further discussed in Note 17,
“Regulatory Matters,” in Item 8, “Financial Statements and Supplementary Data.”
Basel III Proposal
In the summer of 2012, our primary federal regulators published two notices of proposed rulemaking (the
“2012 Capital Proposals”) that would substantially revise the risk-based capital requirements applicable to bank
holding companies and depository institutions, including the Company and the Banks, compared to the current U.S.
risk-based capital rules, which are based on the international capital accords of the Basel Committee on Banking
Supervision (the “Basel Committee”) which are generally referred to as “Basel I.”
One of the 2012 Capital Proposals (the “Basel III Proposal”) addresses the components of capital and other
issues affecting the numerator in banking institutions’ regulatory capital ratios, and would implement the Basel
Committee’s December 2010 framework, known as “Basel III,” for strengthening international capital standards.
The other proposal (the “Standardized Approach Proposal”) addresses risk weights and other issues affecting the
denominator in banking institutions’ regulatory capital ratios, and would replace the existing Basel I-derived risk
78
weighting approach with a more risk-sensitive approach based, in part, on the standardized approach in the Basel
Committee’s 2004 “Basel II” capital accords. Although the Basel III Proposal was proposed to come into effect on
January 1, 2013, the federal banking agencies jointly announced on November 9, 2012 that they did not expect any
of the proposed rules to become effective on that date. As proposed, the Standardized Approach Proposal would
come into effect on January 1, 2015.
The federal banking agencies have not proposed rules implementing the final liquidity framework of Basel III,
and have not determined to what extent they will apply to U.S. banks that are not large, internationally active banks.
We believe that, as of December 31, 2012, the Company, the Community Bank, and the Commercial Bank
would meet all capital adequacy requirements under the Basel III and Standardized Approach Proposals on a fully
phased-in basis if such requirements were currently effective. The regulations ultimately applicable to financial
institutions may be substantially different from the Basel III final framework as published in December 2010 and the
proposed rules issued in June 2012. Management will continue to monitor these and any future proposals submitted
by our regulators.
RESULTS OF OPERATIONS: 2012 and 2011
Earnings Summary
In 2012, our earnings rose $21.1 million year-over-year, to $501.1 million, equivalent to a $0.04 increase in
diluted earnings per share to $1.13. The increase was primarily due to a $98.0 million, or 121.4%, rise in mortgage
banking income to $178.6 million, which more than offset the impact of a $40.4 million, or 3.4%, decline in net
interest income to $1.2 billion and a $12.7 million, or 2.1%, increase in non-interest expense to $613.5 million.
The increase in mortgage banking income was attributable to the decline in mortgage interest rates from the
levels in 2011, which triggered a significant increase in the production of one-to-four family loans for sale through
most of 2012. At the same time, the decline in market interest rates was largely responsible for the decline in net
interest income, as our balance sheet was replenished with assets that featured lower yields. Reflecting the increase
in refinancing activity in our multi-family market, prepayment penalty income contributed a record $120.4 million
to our 2012 net interest income, tempering the impact of the decline in asset yields.
Partly reflecting the aforementioned improvement in the quality of our assets, we also reduced our provision
for losses on non-covered loans from $79.0 million in 2011 to $45.0 million in 2012. In addition, the provision for
losses on covered loans fell $3.4 million year-over-year, to $18.0 million. In connection with the latter decline, we
recorded FDIC indemnification income of $14.4 million in non-interest income, down $3.2 million from the year-
earlier amount.
Primarily reflecting the increase in mortgage banking income, non-interest income rose from $235.3 million in
2011 to $297.4 million in 2012. In addition to the decline in FDIC indemnification income, the benefit of the
increase in mortgage banking income was tempered by a $4.1 million decline in the combined total of fee income,
BOLI income, and other income to $104.6 million; a $34.6 million decline in net securities gains to $2.0 million;
and a $2.3 million loss on the redemption of trust preferred securities in the fourth quarter of the year.
Reflecting these factors, and others discussed in the following pages, pre-tax income rose $46.3 million year-
over-year to $780.9 million, and the effective tax rate rose from 34.7% in 2011 to 35.8% in 2012.
Net Interest Income
Net interest income is our primary source of income. Its level is a function of the average balance of our
interest-earning assets, the average balance of our interest-bearing liabilities, and the spread between the yield on
such assets and the cost of such liabilities. These factors are influenced by both the pricing and mix of our interest-
earning assets and our interest-bearing liabilities which, in turn, are impacted by various external factors, including
the local economy, competition for loans and deposits, the monetary policy of the Federal Open Market Committee
of the Federal Reserve Board of Governors (the “FOMC”), and market interest rates.
The cost of our deposits and borrowed funds is largely based on short-term rates of interest, the level of which
is partially impacted by the actions of the FOMC. The FOMC reduces, maintains, or increases the target fed funds
rate (the rate at which banks borrow funds overnight from one another) as it deems necessary. The target fed funds
rate has been maintained at a range of zero to 0.25% since the fourth quarter of 2008.
79
While the target fed funds rate generally impacts the cost of our short-term borrowings and deposits, the yields
on our held-for-investment loans and other interest-earning assets are typically impacted by intermediate-term
market interest rates.
Net interest income is also influenced by the level of prepayment penalty income generated, primarily in
connection with the prepayment of our multi-family and CRE loans. Since prepayment penalty income is recorded
as interest income, an increase or decrease in its level will also be reflected in the average yields on our loans and
other interest-earning assets, and therefore, in our interest rate spread and net interest margin.
In 2012, we generated net interest income of $1.2 billion, which was $40.4 million, or 3.4%, less than the
year-earlier amount. While interest expense declined $35.2 million year-over-year, to $631.1 million, the benefit
was exceeded by the impact of a $75.6 million decrease in interest income to $1.8 billion. Similarly, our net interest
margin declined to 3.21% in 2012 from 3.46% in 2011, as a 16-basis point decline in the average cost of interest-
bearing liabilities was exceeded by a 42-basis point decline in the average yield on our interest-earning assets, as
further discussed below.
The following factors contributed to the changes in net interest income and margin in the twelve months ended
December 31, 2012:
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
The five- and ten-year Constant Maturity Treasury (“CMT”) rates averaged 1.52% and 2.78% in the twelve
months ended December 31, 2011, and declined to 0.76% and 1.80%, respectively, in 2012. The result was
an increase in refinancing activity and property transactions in the markets for our multi-family and CRE
loans. Although prepayment penalty income rose dramatically as refinancing activity increased, our
balance sheet was replenished with loans that featured lower yields. The average yield on loans declined to
5.17% in 2012 from 5.64% in 2011, and the average yield on interest-earning assets fell to 4.96% from
5.38%.
The reduction in interest-earning asset yields was substantially tempered by a $33.8 million, or 35.0%,
increase in prepayment penalty income to $120.4 million in 2012.
In addition, prepayment penalty income added 33 basis points to our net interest margin, as compared to 25
basis points in the prior year.
The year-over-year declines in our net interest income and margin were also tempered by a $1.4 billion
increase in the average balance of interest-earning assets to $36.1 billion, including a $1.8 billion increase
in the average balance of loans to $30.9 billion.
In addition, the year-over-year decline in our net interest income and margin were tempered by a 16-basis
point decline in the average cost of our interest-bearing liabilities to 1.85%, even as the average balance of
such funds rose $954.4 million to $34.1 billion. The degree to which we reduced our average cost of funds
was partially due to the payment received from Aurora Bank for assuming their deposits, as well as the
downward repricing of our own depository accounts.
It should be noted that the level of prepayment penalty income recorded in any given period depends on the
volume of loans that refinance or prepay during that time. Such activity is largely dependent on such external factors
as current market conditions, including real estate values, and the perceived or actual direction of market interest
rates. In addition, while a decline in market interest rates may trigger an increase in refinancing and, therefore,
prepayment penalty income, so too may an increase in market interest rates. It is not unusual for borrowers to lock in
lower interest rates when they expect, or see, that market interest rates are rising rather than risk refinancing later at
a still higher interest rate.
Furthermore, the level of prepayment penalty income recorded when a loan prepays is a function of the
remaining principal balance as well as the number of years remaining on the loan. The number of years dictates the
number of prepayment penalty points that are charged on the remaining principal balance, based on a sliding scale of
five percentage points to one, as discussed under “Multi-Family Loans” and “Commercial Real Estate Loans” earlier
in this report. Among the loans prepaying in 2012 were two loans to a single borrower totaling $545.5 million; the
prepayment of these loans accounted for $17.9 million of the prepayment penalty income recorded in 2012.
80
Net Interest Income Analysis
The following table sets forth certain information regarding our average balance sheet for the years indicated, including the average yields on our interest-
earning assets and the average costs of our interest-bearing liabilities. Average yields are calculated by dividing the interest income produced by the average
balance of interest-earning assets. Average costs are calculated by dividing the interest expense produced by the average balance of interest-bearing liabilities.
The average balances for the year are derived from average balances that are calculated daily. The average yields and costs include fees, as well as premiums and
discounts (including mark-to-market adjustments from acquisitions), that are considered adjustments to such average yields and costs.
(dollars in thousands)
ASSETS:
Interest-earning assets:
Mortgage and other loans, net (1)
Securities and money market investments (2)(3)
Total interest-earning assets
Non-interest-earning assets
Total assets
LIABILITIES AND STOCKHOLDERS’ EQUITY:
Interest-bearing liabilities:
NOW and money market accounts
Savings accounts
Certificates of deposit
Total interest-bearing deposits
Borrowed funds
Total interest-bearing liabilities
Non-interest-bearing deposits
Other liabilities
Total liabilities
Stockholders’ equity
Total liabilities and stockholders’ equity
Net interest income/interest rate spread
Net interest margin
Ratio of interest-earning assets to
interest-bearing liabilities
2012
For the Years Ended December 31,
2011
2010
Average
Balance
Interest
Average
Yield/
Cost
Average
Balance
Interest
Average
Yield/
Cost
Average
Balance
Interest
Average
Yield/
Cost
$30,906,145 $1,597,504
193,597
1,791,101
5,210,297
36,116,442
6,377,013
$42,493,455
5.17%
3.72
4.96
$29,079,468 $1,638,651
228,013
1,866,664
5,608,502
34,687,970
6,443,040
$41,131,010
5.64%
4.07
5.38
$28,735,155 $1,669,871
243,923
1,913,794
5,437,610
34,172,765
7,670,848
$41,843,613
5.81%
4.49
5.60
$ 8,833,412 $ 36,609
13,677
93,880
144,166
486,914
631,080
4,089,019
8,405,143
21,327,574
12,771,311
34,098,885
2,575,841
287,674
36,962,400
5,531,055
$42,493,455
$1,160,021
0.41%
0.33
1.12
0.68
3.81
1.85
3.11%
3.21%
1.06x
$ 8,641,022 $ 39,285
15,488
102,400
157,173
509,070
666,243
3,946,965
7,420,397
20,008,384
13,136,067
33,144,451
2,222,280
262,640
35,629,371
5,501,639
$41,131,010
$1,200,421
0.45%
0.39
1.38
0.79
3.88
2.01
3.37%
3.46%
1.05x
$ 8,210,197 $ 56,991
20,833
138,716
216,540
517,291
733,831
3,883,327
8,575,238
20,668,762
13,535,790
34,204,552
1,914,842
331,914
36,451,308
5,392,305
$41,843,613
$1,179,963
0.69%
0.54
1.62
1.05
3.82
2.15
3.45%
3.45%
1.00x
(1) Amounts are net of net deferred loan origination costs/(fees) and the allowances for loan losses, and include loans held for sale and non-performing loans.
(2) Amounts are at amortized cost.
(3) Includes FHLB stock.
81
Rate/Volume Analysis
The following table presents the extent to which changes in interest rates and changes in the volume of
interest-earning assets and interest-bearing liabilities have affected our interest income and interest expense during
the periods indicated. Information is provided in each category with respect to (i) the changes attributable to changes
in volume (changes in volume multiplied by prior rate); (ii) the changes attributable to changes in rate (changes in
rate multiplied by prior volume); and (iii) the net change. The changes attributable to the combined impact of
volume and rate have been allocated proportionately to the changes due to volume and the changes due to rate.
Year Ended
December 31, 2012
Compared to Year Ended
December 31, 2011
Increase/(Decrease)
Due to
Year Ended
December 31, 2011
Compared to Year Ended
December 31, 2010
Increase/(Decrease)
Due to
Volume
Rate
Net
Volume
Rate
Net
$ 129,798 $(170,945) $ (41,147)
(34,416)
(18,857)
(75,563)
(189,802)
(15,559)
114,239
$ 20,405 $(51,625)
(23,938)
(75,563)
8,028
28,433
$ (31,220)
(15,910)
(47,130)
$
901 $
584
19,526
(13,991)
7,020
(3,577) $ (2,676)
(1,811)
(2,395)
(8,520)
(28,046)
(22,156)
(8,165)
(35,163)
(42,183)
$ 107,219 $(147,619) $ (40,400)
$ 3,176 $(20,882) $ (17,706)
(5,345)
(5,692)
(36,316)
(18,947)
(8,221)
7,465
(67,588)
(38,056)
$ 57,965 $(37,507) $ 20,458
347
(17,369)
(15,686)
(29,532)
(in thousands)
INTEREST-EARNING ASSETS:
Mortgage and other loans, net
Securities and money market investments
Total
INTEREST-BEARING LIABILITIES:
NOW and money market accounts
Savings accounts
Certificates of deposit
Borrowed funds
Total
Change in net interest income
Provisions for Loan Losses
Provision for Losses on Non-Covered Loans
The provision for losses on non-covered loans is based on management’s periodic assessment of the adequacy
of the allowance for losses on such loans which, in turn, is based on its evaluation of inherent losses in the held-for-
investment loan portfolio in accordance with GAAP. This evaluation considers several factors, including the current
and historical performance of the portfolio; its inherent risk characteristics; the level of non-performing non-covered
loans and charge-offs; delinquency levels and trends; local economic and market conditions; declines in real estate
values; and the levels of unemployment and vacancy rates.
As a result of management’s assessment of these factors, including the year-over-year decline in non-
performing non-covered loans and assets, we reduced our provision for losses on non-covered loans from $79.0
million in 2011 to $45.0 million in 2012. Nonetheless, the allowance for losses on non-covered loans rose $3.7
million year-over-year, to $140.9 million, as the $34.0 million reduction in the provision for non-covered loan losses
occurred in tandem with a $59.3 million decrease in net charge-offs to $41.3 million.
Provision for Losses on Covered Loans
A provision for losses on covered loans is recorded when the cash flows from certain loan portfolios acquired
in our FDIC-assisted acquisitions are expected to be less than the cash flows we expected at the time of acquisition,
as a result of a deterioration in credit quality. If we had reason to believe that the cash flows from acquired loans
would exceed our original expectations, we would reverse the previously established covered loan loss allowance
and increase our interest income as a prospective yield adjustment over the remaining life of the loan or pool of
loans.
Primarily reflecting a recovery of $3.3 million in the fourth quarter, the provision for losses on covered loans
fell $3.4 million year-over-year to $18.0 million in the twelve months ended December 31, 2012.
For additional information about our provisions for loan losses, please see the discussion of the respective
loan loss allowances under “Critical Accounting Policies” and the discussion of “Asset Quality” that appear earlier
in this report.
82
Non-Interest Income
Non-interest income rose $62.0 million, or 26.4%, from the level recorded in 2011 to $297.4 million in 2012.
The non-interest income we produce stems from several sources, some of which are recurring and some of which are
not.
Our primary source of non-interest income is mortgage banking income, which includes income from the
origination of one-to-four family loans for sale, and income from the servicing of these and other one-to-four family
loans. In 2012, mortgage banking income accounted for $178.6 million of total non-interest income, and exceeded
the year-earlier level by $98.0 million or 121.4%. The increase was largely due to the rise in income from
originations, as the low level of mortgage interest rates encouraged a high level of refinancing activity and home
purchases through most of the year. While income from originations rose $113.1 million year-over-year to $193.2
million, we also recorded a servicing loss of $14.6 million in 2012. By comparison, income from originations totaled
$80.2 million in 2011, and was complemented by servicing income of $517,000. The servicing loss in 2012 reflects
a decrease in the fair value of MSRs due to the accelerated refinancing of residential mortgage loans noted in the
“Loans Held for Sale” discussion, and was partially offset by a gain on derivatives and servicing fee income.
Our other recurring sources of non-interest income are fee income (in the form of retail deposit fees and
charges on loans); income from our investment in BOLI; and other income, which is derived from various sources,
including the sale of third-party investment products in our branches, and the revenues from our wholly-owned
subsidiary, Peter B. Cannell & Co., Inc., an investment advisory firm. In 2012, the non-interest income produced by
fee income, BOLI income, and other income together totaled $104.6 million, reflecting a $4.1 million decline from
the year-earlier amount.
We also generated non-interest income in the form of net securities gains and FDIC indemnification income,
which fell from $36.6 million and $17.6 million, respectively in 2011 to $2.0 million and $14.4 million,
respectively, in 2012. In addition, our non-interest income was reduced in 2012 by a $2.3 million loss on the
redemption of certain trust preferred securities in the fourth quarter, and in 2011 by an $18.1 million OTTI loss on
certain securities. The OTTI loss was somewhat offset by a $9.8 million gain on the disposition of our insurance
premium financing business.
The following table summarizes our sources of non-interest income in 2012, 2011, and 2010:
Non-Interest Income Analysis
(in thousands)
Mortgage banking income
Fee income
BOLI
Net gain on sales of securities
FDIC indemnification income
Gain on business disposition
Loss on OTTI loss of securities
Gain on business acquisitions
(Loss)/gain on debt redemptions
Other income:
For the Years Ended December 31,
2011
$ 80,674
44,874
28,384
36,608
17,633
9,823
(18,124)
--
--
2010
$183,883
54,584
28,015
22,430
11,308
--
(1,971)
2,883
3,008
2012
$178,643
38,348
30,502
2,041
14,390
--
--
--
(2,313)
Peter B. Cannell & Co., Inc.
Third-party investment product sales
Other
Total other income
Total non-interest income
14,837
15,422
5,483
35,742
$297,353
14,022
13,387
8,044
35,453
$235,325
12,711
10,486
10,586
33,783
$337,923
While we expect mortgage banking income to remain our single largest source of non-interest income, it
should be noted that the amount we record in any given year or quarter is likely to vary and therefore is difficult to
predict. The mortgage banking income we record depends in large part on the volume of loans originated which, in
turn, depends on a variety of factors, including changes in market interest rates and economic conditions,
competition, refinancing activity, and loan demand.
83
Non-Interest Expense
Non-interest expense has two primary components: operating expenses, which include compensation and
benefits, occupancy and equipment, and general and administrative (“G&A”) expenses; and the amortization of the
CDI stemming from certain of our business combinations prior to 2009. In 2012, non-interest expense rose $12.7
million year-over-year, to $613.5 million, the net effect of a $19.2 million increase in operating expenses to $593.8
million and a $6.4 million reduction in CDI amortization to $19.6 million.
Compensation and benefits expense accounted for $296.9 million of 2012 operating expenses, 1.2% higher
than the $293.3 million recorded in the prior year. Occupancy and equipment expense rose $3.8 million year-over-
year, to $90.7 million, while G&A expenses rose $11.8 million to $206.2 million.
The increase in G&A expense was due to a combination of factors, including higher deposit insurance
assessments, a rise in OREO write-downs, and an increase in expenses related to our mortgage banking business as
one-to-four family loan production rose year-over-year.
Income Tax Expense
Income tax expense includes federal, New York State, and New York City income taxes, as well as non-
material income taxes from other jurisdictions where we have branch operations and/or conduct our mortgage
banking business.
In 2012, income tax expense rose $25.3 million year-over-year to $279.8 million as pre-tax income rose $46.3
million to $780.9 million, and the effective tax rate rose to 35.8% from 34.7%. The increase in the effective tax rate
reflects the increase in pre-tax income as well as the expiration of certain tax credits.
RESULTS OF OPERATIONS: 2011 and 2010
Earnings Summary
In the twelve months ended December 31, 2011, we generated earnings of $480.0 million, or $1.09 per diluted
share, as compared to $541.0 million, or $1.24 per diluted share, in the twelve months ended December 31, 2010.
Although our 2011 performance benefited from a modest increase in net interest income and a decline in our
non-covered loan loss provision, these benefits were exceeded by the impact of a substantial decline in non-interest
income and a more modest increase in non-interest expense.
Net interest income rose $20.5 million year-over-year to $1.2 billion, as a $47.1 million decline in interest
income was exceeded by a $67.6 million reduction in interest expense. Among the factors contributing to the rise in
net interest income were an increase in the average balance of interest-earning assets and a significant rise in
prepayment penalty income, as a decline in market interest rates triggered an increase in property transactions and
refinancing activity in our multi-family space. The rise in net interest income was also fueled by a decline in the
average balance and cost of our interest-bearing deposits, together with a decline in the average balance of borrowed
funds. In view of our liquidity, which was fueled by an increase in cash flows from loans and securities, we were
able to reduce certain higher-cost funding sources and to refrain from competing for deposits by paying higher
interest rates.
The year-over-year decline in the non-covered loan loss provision was attributable to the significant
improvement in the quality of our assets. Specifically, in 2011, the provision for losses on non-covered loans totaled
$79.0 million, reflecting a $12.0 million reduction from the year-earlier amount.
In contrast to the modest increase in net interest income, non-interest income declined to $235.3 million in
2011 from $337.9 million in 2010. The reduction was primarily due to a $103.2 million decrease in mortgage
banking income to $80.7 million, as the volume of one-to-four family loans produced for sale declined from the
prior year’s level, the result of continued weakness in the U.S. housing market and an increase in residential
mortgage interest rates in the first six months of the year. Servicing income also declined in 2011, reflecting the
expiration of our mortgage servicing arrangement with the FDIC in the fourth quarter of 2010.
While non-interest income was also reduced by a $9.7 million decline in fee income and an OTTI loss of
$18.1 million, these declines were somewhat offset by a $14.2 million increase in net securities gains to $36.6
million and a $9.8 million gain on the disposition of our insurance premium financing subsidiary during the year. On
an after-tax basis, the respective gains were equivalent to $21.8 million and $5.9 million, or $0.05 and $0.01 per
84
diluted share, respectively. By comparison, the OTTI loss was equivalent to $10.8 million, or $0.02 per diluted
share, after-tax. In 2010, net securities gains added $22.4 million to non-interest income, while a gain on the Desert
Hills acquisition added $2.9 million. On an after-tax basis, the respective gains were $13.5 million and $1.8 million,
equivalent to $0.03 and $0.01 per diluted share, respectively.
Non-interest expense rose $23.2 million year-over-year, to $600.7 million, as a $28.4 million increase in
operating expenses to $574.7 million exceeded a $5.2 million reduction in the amortization of CDI to $26.1 million.
Compensation and benefits expense accounted for $18.5 million of the year-over-year increase in operating
expenses, while G&A expense accounted for $11.1 million of this increase. In addition to reflecting normal salary
increases and incentive stock award grants, the rise in 2011 compensation and benefits expense reflected severance
charges of $2.3 million (or $1.4 million after-tax) in connection with a reduction in staff in the fourth quarter of the
year.
The year-over-year increase in G&A expense for the twelve months ended December 31, 2011 was primarily
due to legal and other expenses stemming from the acquisition and management of foreclosed real estate. Although
such expenses were also incurred in 2010, the level of G&A expense during that year was increased by acquisition-
related costs of $11.5 million stemming from the FDIC-assisted acquisitions of AmTrust and Desert Hills. On an
after-tax basis, these costs were equivalent to $7.0 million, or $0.02 per diluted share.
Reflecting the resultant decline in pre-tax income, income tax expense fell to $254.5 million in 2011 from
$296.5 million in 2010.
Net Interest Income
In 2011, we recorded net interest income of $1.2 billion, reflecting a year-over-year increase of $20.5 million.
Although interest income declined $47.1 million year-over-year to $1.9 billion, the decline was exceeded by a $67.6
million reduction in interest expense to $666.2 million.
A description of the factors contributing to the modest growth of our net interest income follows:
Interest Income
Notwithstanding a $515.2 million rise in the average balance of interest-earning assets to $34.7 billion,
interest income declined $47.1 million in 2011 to $1.9 billion, as the average yield on interest-earning assets fell 22
basis points to 5.38%.
The yields generated by our loans and other interest-earning assets are typically driven by intermediate-term
interest rates, which are set by the market and generally vary from day to day. Reflecting a decline in market interest
rates from the year-earlier level, the average yield on loans fell 17 basis points to 5.64% in 2011 and the average
yield on securities and money market investments fell 42 basis points to 4.07%. The impact of the respective
declines was tempered by a $344.3 million increase in the average balance of loans to $29.1 billion, and a $170.9
million increase in the average balance of securities and money market investments to $5.6 billion.
The increase in the average balance of loans was driven by multi-family and CRE loan production, as the
decline in market interest rates triggered an increase in property transactions, together with a significant increase in
refinancing activity. As a result, prepayment penalty income rose $63.9 million, or 282.4%, in 2011 from the year-
earlier level, adding $86.6 million to the interest income generated by loans and 30 basis points to their average
yield. In contrast, prepayment penalty income added $22.6 million to the interest income generated by loans in 2010,
and eight basis points to the average yield on loans.
Although the purchase of GSE securities contributed to the increase in the average balance of securities and
money market investments, the benefit was largely tempered by calls and repayments as the level of market interest
rates declined over the course of the year.
Interest Expense
The year-over-year decline in interest expense was the result of a $1.1 billion decrease in the average balance
of interest-bearing liabilities to $33.1 billion and a 14-basis point decrease in the average cost of such funds to
2.01%.
The average balance of interest-bearing deposits fell $660.4 million year-over-year to $20.0 billion, as a $1.2
billion reduction in the average balance of CDs, to $7.4 billion, exceeded more modest increases in the average
85
balances of NOW and money market accounts and savings accounts. In addition, the average balance of borrowed
funds fell $399.7 million year-over-year to $13.1 billion. Both declines were consistent with our efforts to reduce
our higher-cost funding sources while, at the same time, increasing the balances of lower-cost deposits and non-
interest-bearing accounts.
The cost of our deposits and borrowed funds is largely based on short-term rates of interest, the level of which
is partially impacted by the actions of the FOMC. The FOMC reduces, maintains, or increases the target federal
funds rate (the rate at which banks borrow from one another) as it deems necessary to promote the health of the U.S.
economy. Although economic conditions reflected modest improvement in certain markets, the pace of economic
recovery continued to be slow. Real estate values remained well below pre-2007 levels, and unemployment rates
ranged from a high of 9.1% in January and the entire third quarter to a low of 8.5% in December 2011. As a result,
the FOMC maintained the target federal funds rate at the same historically low level it initially established in the
fourth quarter of 2008, zero to 0.25%.
Although the degree to which we reduced our funding costs was greater in 2010 than in 2011, the average cost
of our CDs fell 24 basis points year-over-year to 1.38%, while the average costs of our NOW and money market
accounts and savings accounts fell 24 and 15 basis points, respectively, to 0.45% and 0.39%. The benefit of these
declines was partly tempered by a six-basis point rise in the average cost of borrowed funds to 3.88%.
In addition to the low level of short-term interest rates, the decline in the average cost of our interest-bearing
deposits reflects our ability to refrain from paying higher rates for deposits. In 2011, that ability was reinforced by
the liquidity provided by our other funding sources, including the cash flows from the repayment and sale of loans
and the repayment and sale of securities.
Interest Rate Spread and Net Interest Margin
The same factors that contributed to the modest increase in net interest income in 2011 contributed to a
modest increase in our net interest margin. At 3.46%, our margin was one basis point higher than the year-earlier
measure, even as our interest rate spread fell eight basis points to 3.37%.
While our margin and spread typically move in the same direction, the increase in our margin, albeit modest,
reflects the benefits of having grown our average interest-earning assets while, at the same time, having reduced our
average interest-bearing liabilities.
Prepayment penalty income contributed 25 basis points each to our margin and spread in 2011; in 2010,
prepayment penalty income added six basis points to our margin and seven basis points to our spread.
Provisions for Loan Losses
Provision for Losses on Non-Covered Loans
Reflecting management’s assessment of the adequacy of the allowance for losses on non-covered loans, we
reduced our losses on non-covered loans to $79.0 million in 2011 from $91.0 million in 2010. The allowance for
losses on non-covered loans declined to $137.3 million as a result of this reduction and the $41.1 million increase in
net charge-offs during the year.
Provision for Losses on Covered Loans
The provision for losses on covered loans grew to $21.4 million in 2011 from $11.9 million in the prior year.
Reflecting the $9.5 million increase in this provision, the allowance for losses on covered loans rose to $33.3 million
at December 31, 2011 from $11.9 million at December 31, 2010.
Non-Interest Income
In 2011, as in 2010, the income generated by our mortgage banking operation was our largest source of non-
interest income, totaling $80.7 million in the current twelve-month period and $183.9 million in the year-earlier
twelve months. Income from originations accounted for $80.2 million and $136.5 million of the respective totals,
while servicing income accounted for $517,000 and $47.4 million, respectively.
The decline in income from originations was attributable to ongoing weakness in the U.S. housing market as
the nation continued to be faced with high levels of unemployment and the inventory of one-to-four family homes
continued to exceed demand. In addition, residential mortgage interest rates were higher in the first half of 2011 than
they were in the prior period, discouraging both the purchase and the refinancing of one-to-four family homes. The
86
decline in servicing income was largely due to the expiration of a loan servicing arrangement with the FDIC in the
fourth quarter of 2010.
Fee income declined $9.7 million year-over-year, to $44.9 million, primarily reflecting a reduction in lending
fee income in connection with accounts serviced for the FDIC. The reductions in mortgage banking income and fee
income were nominally tempered by modest increases in BOLI income and other income over the course of the
year.
In 2011, the non-interest income generated by our ongoing sources was complemented by net securities gains
of $36.6 million, exceeding the year-earlier level by $14.2 million. In addition, FDIC indemnification income
contributed $17.6 million to non-interest income in 2011, exceeding the year-earlier level by $6.3 million. While
non-interest income was also increased by a $9.8 million gain on the disposition of our insurance premium financing
business in the second quarter, the benefit was exceeded by an OTTI loss of $18.1 million, as compared to an OTTI
loss of $2.0 million in 2010.
Reflecting these factors, non-interest income totaled $235.3 million in the twelve months ended December 31,
2011, as compared to $337.9 million in the twelve months ended December 31, 2010.
Non-Interest Expense
In 2011, non-interest expense totaled $600.7 million, reflecting a year-over-year increase of $23.2 million, or
4.0%. While operating expenses rose $28.4 million to $574.7 million, representing 1.40% of average assets, the
impact was somewhat tempered by a $5.2 million decline in the amortization of CDI to $26.1 million.
Although occupancy and equipment expense declined $1.2 million year-over-year, to $86.9 million, the
decline was far exceeded by an $18.5 million increase in compensation and benefits expense to $293.3 million and
an $11.1 million increase in G&A expense to $194.4 million. Included in 2010’s G&A expense were acquisition-
related costs of $11.5 million stemming from the AmTrust and Desert Hills transactions in December 2009 and
March 2010, respectively.
In addition to normal salary increases, the year-over-year increase in compensation and benefits expense
reflects stock awards that were granted to employees in accordance with our shareholder-approved stock incentive
plan. Also included in 2011 compensation and benefits expense were severance charges of $2.3 million in
connection with a reduction in staff that was primarily necessitated by changes in the way our customers do their
banking as a result of advances in technology.
While several factors contributed to the rise in G&A expense—including a $5.6 million increase in FDIC
deposit insurance premiums to $54.3 million—primary among them was an increase in legal and other expenses
incurred in the acquisition and management of foreclosed property.
Reflecting the levels of net interest income, non-interest income, and operating expenses recorded in 2011, our
efficiency ratio was 40.03%.
Income Tax Expense
Income tax expense declined $41.9 million year-over-year to $254.5 million in the twelve months ended
December 31, 2011. In addition to reflecting a $102.9 million reduction in pre-tax income to $734.6 million, the
level of income tax expense recorded in 2011 reflects a decline in the effective tax rate to 34.7% from 35.4%.
87
QUARTERLY FINANCIAL DATA
The following table sets forth selected unaudited quarterly financial data for the years ended December 31,
2012 and 2011:
(in thousands, except per share data)
Net interest income
Provisions for loan losses
Non-interest income
Non-interest expense
Income before income taxes
Income tax expense
Net income
Basic earnings per share
Diluted earnings per share
IMPACT OF INFLATION
2012
4th
3rd
2nd
1st
1,720
55,495
154,550
189,226
66,383
12,820
81,657
153,321
200,466
71,668
$290,001 $284,950 $296,656 $288,414
15,000
61,996
150,177
185,233
66,980
$122,843 $128,798 $131,212 $118,253
$0.27
$0.27
33,448
98,205
155,429
205,984
74,772
$0.29
$0.29
$0.30
$0.30
$0.28
$0.28
4th
$300,258
32,712
59,758
146,387
180,917
63,265
$117,652
$0.27
$0.27
2011
1st
3rd
18,000
58,069
152,616
182,420
62,670
2nd
$294,967 $301,944 $303,252
26,000
58,610
146,702
189,160
65,984
$119,750 $119,459 $123,176
$0.28
$0.28
23,708
58,888
155,044
182,080
62,621
$0.27
$0.27
$0.27
$0.27
The consolidated financial statements and notes thereto presented in this report have been prepared in
accordance with GAAP, which requires that we measure our financial condition and operating results in terms of
historical dollars, without considering changes in the relative purchasing power of money over time due to inflation.
The impact of inflation is reflected in the increased cost of our operations. Unlike industrial companies, nearly all of
a bank’s assets and liabilities are monetary in nature. As a result, the impact of interest rates on our performance is
greater than the impact of general levels of inflation. Interest rates do not necessarily move in the same direction, or
to the same extent, as the prices of goods and services.
IMPACT OF ACCOUNTING PRONOUNCEMENTS
Please refer to Note 2, “Summary of Significant Accounting Policies,” in Item 8, “Financial Statements and
Supplementary Data,” for a discussion of the impact of recent accounting pronouncements on our financial
condition and results of operations.
88
RECONCILIATIONS OF STOCKHOLDERS’ EQUITY AND TANGIBLE STOCKHOLDERS’ EQUITY,
TOTAL ASSETS AND TANGIBLE ASSETS, AND THE RELATED MEASURES
Although tangible stockholders’ equity, adjusted tangible stockholders’ equity, tangible assets, and adjusted
tangible assets are not measures that are calculated in accordance with GAAP, management uses these non-GAAP
measures in their analysis of our performance. We believe that these non-GAAP measures are important indications
of our ability to grow both organically and through business combinations and, with respect to tangible
stockholders’ equity and adjusted tangible stockholders’ equity, our ability to pay dividends and to engage in various
capital management strategies.
We calculate tangible stockholders’ equity by subtracting from stockholders’ equity the sum of our goodwill
and CDI, and calculate tangible assets by subtracting the same sum from our total assets. To calculate our ratio of
tangible stockholders’ equity to tangible assets, we divide our tangible stockholders’ equity by our tangible assets,
both of which include AOCL. AOCL consists of after-tax net unrealized losses on securities and pension and post-
retirement obligations, and is recorded in our Consolidated Statements of Condition. We also calculate our ratio of
tangible stockholders’ equity to tangible assets excluding AOCL, as its components are impacted by changes in
market conditions, including interest rates, which fluctuate. This ratio is referred to earlier in this report and below
as the ratio of “adjusted tangible stockholders’ equity to adjusted tangible assets.”
Tangible stockholders’ equity, adjusted tangible stockholders’ equity, tangible assets, adjusted tangible assets,
and the related tangible capital measures, should not be considered in isolation or as a substitute for stockholders’
equity or any other capital measure prepared in accordance with GAAP. Moreover, the manner in which we
calculate these non-GAAP capital measures may differ from that of other companies reporting measures of capital
with similar names.
Reconciliations of our stockholders’ equity, tangible stockholders’ equity, and adjusted tangible stockholders’
equity; our total assets, tangible assets, and adjusted tangible assets; and the related capital measures at
December 31, 2012 and December 31, 2011 follow:
(dollars in thousands)
Stockholders’ Equity
Less: Goodwill
Core deposit intangibles
Tangible stockholders’ equity
Total Assets
Less: Goodwill
Core deposit intangibles
Tangible assets
Stockholders’ equity to total assets
Tangible stockholders’ equity to tangible assets
December 31,
2012
2011
$ 5,656,264
(2,436,131)
(32,024)
$ 3,188,109
$ 5,565,704
(2,436,131)
(51,668)
$ 3,077,905
$44,145,100
(2,436,131)
(32,024)
$41,676,945
$42,024,302
(2,436,131)
(51,668)
$39,536,503
12.81%
7.65%
13.24%
7.78%
Tangible Stockholders’ Equity
Add back: Accumulated other comprehensive loss, net of tax
Adjusted tangible stockholders’ equity
$3,188,109
61,705
$3,249,814
$3,077,905
71,910
$3,149,815
Tangible Assets
Add back: Accumulated other comprehensive loss, net of tax
Adjusted tangible assets
$41,676,945
61,705
$41,738,650
$39,536,503
71,910
$39,608,413
Adjusted stockholders' equity to adjusted tangible assets
7.79%
7.95%
89
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We manage our assets and liabilities to reduce our exposure to changes in market interest rates. The asset and
liability management process has three primary objectives: to evaluate the interest rate risk inherent in certain
balance sheet accounts; to determine the appropriate level of risk, given our business strategy, operating environment,
capital and liquidity requirements, and performance objectives; and to manage that risk in a manner consistent with
guidelines approved by the Boards of Directors of the Company, the Community Bank, and the Commercial Bank.
Market Risk
As a financial institution, we are focused on reducing our exposure to interest rate volatility, which represents
our primary market risk. Changes in market interest rates represent the greatest challenge to our financial
performance, as such changes can have a significant impact on the level of income and expense recorded on a large
portion of our interest-earning assets and interest-bearing liabilities, and on the market value of all interest-earning
assets, other than those possessing a short term to maturity. To reduce our exposure to changing rates, the Boards of
Directors and management monitor interest rate sensitivity on a regular or as needed basis so that adjustments to the
asset and liability mix can be made when deemed appropriate.
The actual duration of held-for-investment mortgage loans and mortgage-related securities can be significantly
impacted by changes in prepayment levels and market interest rates. The level of prepayments may be impacted by a
variety of factors, including the economy in the region where the underlying mortgages were originated; seasonal
factors; demographic variables; and the assumability of the underlying mortgages. However, the largest
determinants of prepayments are market interest rates and the availability of refinancing opportunities.
In 2012, we continued to pursue the core components of our business model in order to reduce our interest rate
risk: (1) We continued to emphasize the origination and retention of intermediate-term assets, primarily in the form
of multi-family and CRE loans; (2) We continued to deploy the cash flows from loan and securities repayments and
sales to fund our loan production, as well as our more limited investments in GSE securities; (3) We continued to
capitalize on the historically low level of the target federal funds rate to reduce our retail funding costs; and (4) We
received a payment of $24.0 million from Aurora Bank for having assumed $2.2 billion in deposits, which reduced
the average cost of those funds. In addition, we began the process of repositioning certain wholesale borrowings in
late December and redeemed certain trust preferred securities at the end of that month. Reflecting these actions, and
the continuation of the repositioning in January 2013, we reduced the weighted average interest rate on $6.0 billion
of borrowed funds by 117 basis points, and extended the weighted average call and maturity dates by approximately
four years.
In connection with the activities of our mortgage banking operation, we enter into contingent commitments to
fund residential mortgage loans by a specified future date at a stated interest rate and corresponding price. Such
commitments, which are generally known as interest rate lock commitments (“IRLCs”), are considered to be
financial derivatives and, as such, are carried at fair value.
To mitigate the interest rate risk associated with our IRLCs, we enter into forward commitments to sell
mortgage loans or mortgage-backed securities (“MBS”) by a specified future date and at a specified price. These
forward sale agreements are also carried at fair value. Such forward commitments to sell generally obligate us to
complete the transaction as agreed, and therefore pose a risk to us if we are not able to deliver the loans or MBS
pursuant to the terms of the applicable forward-sale agreement. For example, if we are unable to meet our
obligation, we may be required to pay a “make whole” fee to the counterparty.
When we retain the servicing on the loans we sell, we capitalize a mortgage servicing right (“MSR”) asset.
MSRs are recorded at fair value, with changes in fair value recorded as a component of non-interest income. We
estimate the fair value of the MSR asset based upon a number of factors, including current and expected loan
prepayment rates, economic conditions, and market forecasts, as well as relevant characteristics of the associated
underlying loans. Generally, when market interest rates decline, loan prepayments increase as customers refinance
their existing mortgages to take advantage of more favorable interest rate terms. When a mortgage prepays, or when
loans are expected to prepay earlier than originally expected, a portion of the anticipated cash flows associated with
servicing these loans is terminated or reduced, which can result in a reduction in the fair value of the capitalized
MSRs and a corresponding reduction in earnings.
To mitigate the prepayment risk inherent in MSRs, we could sell the servicing of the loans we originate, and
thus minimize the potential for earnings volatility.
We also invest in exchange-traded derivative financial instruments that are expected to experience opposite
and offsetting changes in fair value as related to the value of our MSRs.
90
Interest Rate Sensitivity Analysis
The matching of assets and liabilities may be analyzed by examining the extent to which such assets and
liabilities are “interest rate sensitive” and by monitoring a bank’s interest rate sensitivity “gap.” An asset or liability
is said to be interest rate sensitive within a specific time frame if it will mature or reprice within that period of time.
The interest rate sensitivity gap is defined as the difference between the amount of interest-earning assets maturing
or repricing within a specific time frame and the amount of interest-bearing liabilities maturing or repricing within
that same period of time.
In a rising interest rate environment, an institution with a negative gap would generally be expected, absent the
effects of other factors, to experience a greater increase in the cost of its interest-bearing liabilities than it would in
the yield on its interest-earning assets, thus producing a decline in its net interest income. Conversely, in a declining
rate environment, an institution with a negative gap would generally be expected to experience a lesser reduction in
the yield on its interest-earning assets than it would in the cost of its interest-bearing liabilities, thus producing an
increase in its net interest income.
In a rising interest rate environment, an institution with a positive gap would generally be expected to
experience a greater increase in the yield on its interest-earning assets than it would in the cost of its interest-bearing
liabilities, thus producing an increase in its net interest income. Conversely, in a declining rate environment, an
institution with a positive gap would generally be expected to experience a lesser reduction in the cost of its interest-
bearing liabilities than it would in the yield on its interest-earning assets, thus producing a decline in its net interest
income.
At December 31, 2012, our one-year gap was a negative 3.69%, as compared to a negative 0.92% at
December 31, 2011. The difference in our one-year gap was attributable to a decline in the balance of loans
maturing or repricing in less than one year; an increase in the balance of borrowed funds maturing in less than one
year; and an increase in the balance of CDs maturing in less than one year.
The table on the following page sets forth the amounts of interest-earning assets and interest-bearing liabilities
outstanding at December 31, 2012 which, based on certain assumptions stemming from our historical experience,
are expected to reprice or mature in each of the future time periods shown. Except as stated below, the amounts of
assets and liabilities shown as repricing or maturing during a particular time period were determined in accordance
with the earlier of (1) the term to repricing, or (2) the contractual terms of the asset or liability. The table provides an
approximation of the projected repricing of assets and liabilities at December 31, 2012 on the basis of contractual
maturities, anticipated prepayments, and scheduled rate adjustments within a three-month period and subsequent
selected time intervals. For residential mortgage-related securities, prepayment rates are forecasted at a weighted
average constant prepayment rate (“CPR”) of 31; for multi-family and CRE loans, prepayment rates are forecasted
at weighted average CPRs of 21 and 17, respectively. Borrowed funds were not assumed to prepay. Savings, NOW,
and money market accounts were assumed to decay based on a comprehensive statistical analysis that incorporates
our historical deposit experience. Based on the results of this analysis, savings accounts were assumed to decay at
32% for the first five years, 18% for years five through ten, and 51% for the years thereafter. NOW accounts were
assumed to decay at 36% for the first five years, 26% for years five through ten, and 37% for the years thereafter.
Including those accounts having specified repricing dates, money market accounts were assumed to decay at 93%
for the first five years and 7% for years five through ten.
Prepayment and deposit decay rates can have a significant impact on our estimated gap. While we believe our
assumptions to be reasonable, there can be no assurance that the assumed prepayment and decay rates noted above
will approximate actual future loan and securities prepayments and deposit withdrawal activity.
To validate our prepayment assumptions for our multi-family and CRE loan portfolios, we perform a monthly
analysis, during which we review our historical prepayment rates and compare them to our projected prepayment
rates. We continually review the actual prepayment rates to ensure that our projections are as accurate as possible,
since prepayments on these types of loans are not as closely correlated to changes in interest rates as prepayments on
one-to-four family loans would be. In addition, we review the call provisions in our borrowings and investment
portfolios and, on a monthly basis, compare the actual calls to our projected calls to ensure that our projections are
reasonable.
As of December 31, 2012, the impact of a 100-basis point decline in market interest rates would have
increased our projected prepayment rates by a constant prepayment rate of one. Conversely, the impact of a 100-
basis point increase in market interest rates would have reduced our projected prepayment rates by a constant
prepayment rate of two.
91
Interest Rate Sensitivity Analysis
(dollars in thousands)
INTEREST-EARNING ASSETS:
Mortgage and other loans (1)
Mortgage-related securities (2)(3)
Other securities and money market
investments (2)
Total interest-earning assets
INTEREST-BEARING LIABILITES:
NOW and money market accounts
Savings accounts
Certificates of deposit
Borrowed funds
Total interest-bearing liabilities
Interest rate sensitivity gap per period (4)
Cumulative interest rate sensitivity gap
Cumulative interest rate sensitivity gap as a
percentage of total assets
Cumulative net interest-earning assets as a
Three
Months
or Less
Four to
Twelve
Months
At December 31, 2012
More Than
More Than
One Year
to Three Years
Three Years
to Five Years
More Than
Five Years
to 10 Years
More
Than
10 Years
Total
$ 4,617,588
168,348
$5,298,672
385,756
$ 9,876,160
645,702
$7,370,185
390,284
$ 3,823,815
1,600,200
$ 525,145
142,182
$31,511,565
3,332,472
1,243,117
6,029,053
461,408
6,145,836
25,244
10,547,106
1,977
7,762,446
68,178
5,492,193
259,894
927,221
2,059,818
36,903,855
3,989,166
653,393
1,900,945
2,225,542
8,769,046
$(2,739,993)
$(2,739,993)
526,857
67,133
3,680,674
760,751
5,035,415
$1,110,421
$(1,629,572)
881,218
288,575
2,865,483
701,080
4,736,356
$ 5,810,750
$4,181,178
1,606,127
332,370
619,671
2,830,452
5,388,620
$2,373,826
$6,555,004
997,359
741,086
41,640
5,938,014
7,718,099
8,783,795
4,213,972
9,120,914
13,430,191
35,548,872
$(2,225,906) $(2,974,115) $ 1,354,983
$1,354,983
$4,329,098
783,068
2,131,415
12,501
974,352
3,901,336
(6.21)%
(3.69)%
9.47%
14.85%
9.81%
3.07%
percentage of net interest-bearing liabilities
68.75 %
88.20 %
122.55%
127.39%
113.68%
103.81%
(1) For the purpose of the gap analysis, non-performing non-covered loans and the allowances for loan losses have been excluded.
(2) Mortgage-related and other securities, including FHLB stock, are shown at their respective carrying amounts.
(3) Expected amount based, in part, on historical experience.
(4) The interest rate sensitivity gap per period represents the difference between interest-earning assets and interest-bearing liabilities.
92
Certain shortcomings are inherent in the method of analysis presented in the preceding Interest Rate
Sensitivity Analysis. For example, although certain assets and liabilities may have similar maturities or periods to
repricing, they may react in different degrees to changes in market interest rates. The interest rates on certain types
of assets and liabilities may fluctuate in advance of the market, while interest rates on other types may lag behind
changes in market interest rates. Additionally, certain assets, such as adjustable-rate loans, have features that restrict
changes in interest rates both on a short-term basis and over the life of the asset. Furthermore, in the event of a
change in interest rates, prepayment and early withdrawal levels would likely deviate from those assumed in
calculating the table. Also, the ability of some borrowers to repay their adjustable-rate loans may be adversely
impacted by an increase in market interest rates.
Interest rate sensitivity is also monitored through the use of a model that generates estimates of the change in
our net portfolio value (“NPV”) over a range of interest rate scenarios. NPV is defined as the net present value of
expected cash flows from assets, liabilities, and off-balance sheet contracts. The NPV ratio, under any interest rate
scenario, is defined as the NPV in that scenario divided by the market value of assets in the same scenario. The
model assumes estimated loan prepayment rates, reinvestment rates, and deposit decay rates similar to those utilized
in formulating the preceding Interest Rate Sensitivity Analysis.
The following table sets forth our NPV as of December 31, 2012:
(dollars in thousands)
Change in
Interest Rates
(in basis points) (1)
--
+100
+200
Market Value
of Assets
$44,734,814
44,184,245
43,581,398
Market Value
of Liabilities
$40,022,871
39,462,105
38,984,096
Net Portfolio
Value
$4,711,943
4,722,140
4,597,302
Net Change
$ --
10,197
(114,641)
Portfolio Market
Value Projected
% Change
to Base
-- %
0.22
(2.43)
(1) The impact of 100- and 200-basis point reductions in interest rates is not presented in view of the current level of the federal
funds rate and other short-term interest rates.
The net changes in NPV presented in the preceding table are within the parameters approved by the Boards of
Directors of the Company and the Banks.
As with the Interest Rate Sensitivity Analysis, certain shortcomings are inherent in the methodology used in
the preceding interest rate risk measurements. Modeling changes in NPV requires that certain assumptions be made
which may or may not reflect the manner in which actual yields and costs respond to changes in market interest
rates. In this regard, the NPV Analysis presented above assumes that the composition of our interest rate sensitive
assets and liabilities existing at the beginning of a period remains constant over the period being measured, and also
assumes that a particular change in interest rates is reflected uniformly across the yield curve, regardless of the
duration to maturity or repricing of specific assets and liabilities. Furthermore, the model does not take into account
the benefit of any strategic actions we may take to further reduce our exposure to interest rate risk. Accordingly,
while the NPV Analysis provides an indication of our interest rate risk exposure at a particular point in time, such
measurements are not intended to, and do not, provide a precise forecast of the effect of changes in market interest
rates on our net interest income, and may very well differ from actual results.
We also utilize an internal net interest income simulation to manage our sensitivity to interest rate risk. The
simulation incorporates various market-based assumptions regarding the impact of changing interest rates on future
levels of our financial assets and liabilities. The assumptions used in the net interest income simulation are
inherently uncertain. Actual results may differ significantly from those presented in the following table, due to the
frequency, timing, and magnitude of changes in interest rates; changes in spreads between maturity and repricing
categories; and prepayments, among other factors, coupled with any actions taken to counter the effects of any such
changes.
93
Based on the information and assumptions in effect at December 31, 2012, the following table reflects the
estimated percentage change in future net interest income for the next twelve months, assuming the changes in
interest rates noted:
Change in Interest Rates
(in basis points) (1)(2)
+100 over one year
+200 over one year
Estimated Percentage Change in
Future Net Interest Income
(0.93)%
(2.27)
(1) In general, short- and long-term rates are assumed to increase in parallel fashion across all four quarters and then remain
unchanged.
(2) The impact of 100- and 200-basis point reductions in interest rates is not presented in view of the current level of the federal
funds rate and other short-term interest rates.
Future changes in our mix of assets and liabilities may result in greater changes to our gap, NPV, and/or net
interest income simulation.
In the event that our interest rate sensitivity gap analysis or net interest income simulation were to indicate a
variance in our NPV in excess of our internal policy limits, we would undertake the following actions to ensure that
appropriate remedial measures were put in place:
(cid:120) Our Management Asset/Liability Committee (the “ALCO Committee”) would inform the Board of
Directors of the variance, and present recommendations to the Board regarding proposed courses of action
to restore conditions to within-policy tolerances.
(cid:120)
In formulating appropriate strategies, the ALCO Committee would ascertain the primary causes of the
variance from policy tolerances, the expected term of such conditions, and the projected effect on capital
and earnings.
Where temporary changes in market conditions or volume levels result in significant increases in risk,
strategies may involve reducing open positions or employing synthetic hedging techniques to more immediately
reduce risk exposure. Where variance from policy tolerances is triggered by more fundamental imbalances in the
risk profiles of core loan and deposit products, a remedial strategy may involve restoring balance through natural
hedges to the extent possible before employing synthetic hedging techniques. Other strategies might include:
(cid:120) Asset restructuring, involving sales of assets having higher risk profiles, or a gradual restructuring of the
asset mix over time to affect the maturity or repricing schedule of assets;
(cid:120)
(cid:120)
Liability restructuring, whereby product offerings and pricing are altered or wholesale borrowings are
employed to affect the maturity structure or repricing of liabilities;
Expansion or shrinkage of the balance sheet to correct imbalances in the repricing or maturity periods
between assets and liabilities; and/or
(cid:120) Use or alteration of off-balance sheet positions, including interest rate swaps, caps, floors, options, and
forward purchase or sales commitments.
Based on our current interest rate risk position, our analyses indicate that a 100-basis point increase in interest
rates within the range of assumptions could result in an increase in our NPV, while our net interest income analysis
could result in a simultaneous decrease, due to the following factors:
(cid:120) Different time measurement periods: The net interest income analysis is measured over a twelve-month
time period, whereas the NPV analysis is measured over the life of each applicable instrument.
(cid:120) Different rate change sensitivities: In the net interest income analysis, the interest rate curve is projected to
move in a parallel fashion over a twelve-month period, while the NPV analysis assumes an immediate rate
shock.
(cid:120) Growth assumptions: The net interest income analysis assumes new loan, security, deposit, and borrowing
growth assumptions, whereas the NPV analysis is a point-in-time analysis that does not incorporate any
new growth assumptions.
In connection with our net interest income simulation modeling, we also evaluate the impact of changes in the
slope of the yield curve. At December 31, 2012, our analysis indicated that an immediate inversion of the yield
94
curve would be expected to result in a 6.38% decrease in net interest income; conversely, an immediate steepening
of the yield curve would be expected to result in a 4.97% increase.
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Our Consolidated Financial Statements and notes thereto and other supplementary data begin on the following
page.
95
NEW YORK COMMUNITY BANCORP, INC.
CONSOLIDATED STATEMENTS OF CONDITION
December 31,
2012
2011
$ 2,427,258 $ 2,001,737
(in thousands, except share data)
ASSETS:
Cash and cash equivalents
Securities:
Available-for-sale ($196,300 and $590,488 pledged, respectively)
Held-to-maturity ($4,084,380 and $3,610,172 pledged, respectively) (fair value of $4,705,960
429,266
724,662
and $3,966,185, respectively)
Total securities
Non-covered loans held for sale
Non-covered loans held for investment, net of deferred loan fees and costs
Less: Allowance for losses on non-covered loans
Non-covered loans held for investment, net
Covered loans
Less: Allowance for losses on covered loans
Covered loans, net
Total loans, net
Federal Home Loan Bank stock, at cost
Premises and equipment, net
FDIC loss share receivable
Goodwill
Core deposit intangibles
Mortgage servicing rights
Bank-owned life insurance
Other real estate owned (includes $45,115 and $71,400, respectively, covered by loss sharing
agreements)
Other assets
Total assets
LIABILITIES AND STOCKHOLDERS’ EQUITY:
Deposits:
NOW and money market accounts
Savings accounts
Certificates of deposit
Non-interest-bearing accounts
Total deposits
Borrowed funds:
Wholesale borrowings:
Federal Home Loan Bank advances
Repurchase agreements
Fed funds purchased
Total wholesale borrowings
Junior subordinated debentures
Other borrowings
Total borrowed funds
Other liabilities
Total liabilities
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; 439,133,951 and 437,426,665
shares issued, and 439,050,966 and 437,344,796 shares outstanding, respectively)
Paid-in capital in excess of par
Retained earnings
Treasury stock, at cost (82,985 and 81,869 shares, respectively)
Accumulated other comprehensive loss, net of tax:
Net unrealized gain on securities available for sale, net of tax
Net unrealized loss on the non-credit portion of other-than-temporary impairment (“OTTI”)
losses on securities, net of tax
Net unrealized loss on pension and post-retirement obligations, net of tax
Total accumulated other comprehensive loss, net of tax
Total stockholders’ equity
Total liabilities and stockholders’ equity
See accompanying notes to the consolidated financial statements.
96
4,484,262
4,913,528
1,204,370
27,284,464
(140,948)
27,143,516
3,284,061
(51,311)
3,232,750
31,580,636
469,145
264,149
566,479
2,436,131
32,024
144,713
867,250
3,815,854
4,540,516
1,036,918
25,532,818
(137,290)
25,395,528
3,753,031
(33,323)
3,719,708
30,152,154
490,228
250,859
695,179
2,436,131
51,668
117,012
768,996
74,415
369,372
155,967
363,855
$44,145,100 $42,024,302
$ 8,783,795 $ 8,757,198
3,953,859
7,373,263
2,241,334
22,325,654
4,213,972
9,120,914
2,758,840
24,877,521
8,842,974
4,125,000
100,000
13,067,974
357,917
4,300
13,430,191
181,124
38,488,836
9,314,193
4,125,000
--
13,439,193
426,936
94,284
13,960,413
172,531
36,458,598
--
--
4,391
5,327,111
387,534
(1,067)
4,374
5,309,269
324,967
(996)
12,614
1,321
(13,525)
(60,794)
(61,705)
5,656,264
(13,627)
(59,604)
(71,910)
5,565,704
$44,145,100 $42,024,302
NEW YORK COMMUNITY BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(in thousands, except per share data)
INTEREST INCOME:
Mortgage and other loans
Securities and money market investments
Total interest income
INTEREST EXPENSE:
NOW and money market accounts
Savings accounts
Certificates of deposit
Borrowed funds
Total interest expense
Net interest income
Provision for losses on non-covered loans
Provision for losses on covered loans
Net interest income after provisions for loan losses
NON-INTEREST INCOME:
Total loss on OTTI of securities
Less: Non-credit portion of OTTI recorded in other comprehensive
income (before taxes)
Net loss on OTTI recognized in earnings
Mortgage banking income
Fee income
Bank-owned life insurance
Net gain on sales of securities
FDIC indemnification income
Gain on business disposition
Gain on business acquisition
(Loss)/gain on debt redemptions
Other
Total non-interest income
NON-INTEREST EXPENSE:
Operating expenses:
Compensation and benefits
Occupancy and equipment
General and administrative
Total operating expenses
Amortization of core deposit intangibles
Total non-interest expense
Income before income taxes
Income tax expense
Net income
Years Ended December 31,
2011
2012
2010
$1,597,504 $1,638,651 $1,669,871
243,923
1,913,794
228,013
1,866,664
193,597
1,791,101
36,609
13,677
93,880
486,914
631,080
1,160,021
45,000
17,988
1,097,033
39,285
15,488
102,400
509,070
666,243
1,200,421
79,000
21,420
1,100,001
56,991
20,833
138,716
517,291
733,831
1,179,963
91,000
11,903
1,077,060
--
(18,124)
(26,456)
--
--
178,643
38,348
30,502
2,041
14,390
--
--
(2,313)
35,742
297,353
--
(18,124)
80,674
44,874
28,384
36,608
17,633
9,823
--
--
35,453
235,325
24,485
(1,971)
183,883
54,584
28,015
22,430
11,308
--
2,883
3,008
33,783
337,923
296,874
90,738
206,221
593,833
19,644
613,477
780,909
279,803
274,864
88,070
183,312
546,246
31,266
577,512
837,471
296,454
$ 501,106 $ 480,037 $ 541,017
293,344
86,903
194,436
574,683
26,066
600,749
734,577
254,540
Other comprehensive income (loss), net of tax:
Change in net unrealized gain/loss on securities available for sale, net of tax
of $8,473; $366; and $17,134
12,533
(540)
25,404
Change in the non-credit portion of OTTI losses recognized in other
comprehensive income, net of tax of $65; $4,857; and $9,656
Amortization of net unrealized loss on securities transferred from available
for sale to held to maturity, net of tax of $2,557
Change in pension and post-retirement obligations, net of tax of $807;
$14,993; and $1,334
Less: Reclassification adjustment for sales of available for sale securities
and loss on OTTI of securities, net of tax of $801; $7,439; and $8,186
Total other comprehensive income (loss), net of tax
Total comprehensive income, net of tax
102
7,251
(14,829)
--
--
3,927
(1,190)
(21,881)
1,979
(1,240)
10,205
(12,273)
4,208
$ 511,311 $ 453,822 $ 545,225
(11,045)
(26,215)
Basic earnings per share
Diluted earnings per share
$1.13
$1.13
$1.09
$1.09
$1.24
$1.24
See accompanying notes to the consolidated financial statements.
97
NEW YORK COMMUNITY BANCORP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(in thousands, except share data)
COMMON STOCK (Par Value: $0.01):
Years Ended December 31,
2011
2012
2010
$ 4,374 $
--
17
4,356 $
2
4,332
3
16
4
--
4,391
--
4,374
17
4,356
5,309,269
(3,430)
20,683
--
589
--
--
5,327,111
5,285,715
(216 )
16,735
4,356
2,679
--
--
5,309,269
5,238,231
(1,145)
10,889
2,549
2,349
3,924
28,918
5,285,715
324,967
501,106
(438,539)
387,534
281,844
480,037
(436,914 )
324,967
175,193
541,017
(434,366)
281,844
(996)
(3,522)
--
3,451
(1,067)
--
--
--
--
(3,696 )
2,500
200
(996 )
--
--
--
--
(4,054)
2,913
1,141
--
(951)
951
--
(71,910)
10,205
(61,705)
(49,903)
4,208
(45,695)
$5,656,264 $5,565,704 $5,526,220
(45,695 )
(26,215 )
(71,910 )
Balance at beginning of year
Shares issued for exercise of stock options (0;168,001; and 308,173, respectively)
Shares issued for restricted stock awards (1,707,286; 1,611,819; and 374,858,
respectively)
Shares issued in connection with the direct stock purchase feature of the Dividend
Reinvestment and Stock Purchase Plan (“DRP”) (0; 0; and 1,766,482)
Balance at end of year
PAID-IN CAPITAL IN EXCESS OF PAR:
Balance at beginning of year
Shares issued for restricted stock awards, net of forfeitures
Compensation expense related to restricted stock awards
Stock options
Tax effect of stock plans
Allocation of Employee Stock Ownership Plan (“ESOP’) stock
Shares issued in connection with the direct stock purchase feature of the DRP
Balance at end of year
RETAINED EARNINGS:
Balance at beginning of year
Net income
Dividends paid on common stock ($1.00 per share in each year)
Balance at end of year
TREASURY STOCK:
Balance at beginning of year
Purchase of common stock (272,991; 229,712; and 248,385 shares, respectively)
Exercise of stock options (0; 135,162; and 176,043 shares, respectively)
Shares issued for restricted stock awards (271,875; 12,681; and 72,342 shares,
respectively)
Balance at end of year
UNALLOCATED COMMON STOCK HELD BY ESOP:
Balance at beginning of year
Earned portion of ESOP
Balance at end of year
ACCUMULATED OTHER COMPREHENSIVE LOSS, NET OF TAX:
Balance at beginning of year
Other comprehensive income (loss), net of tax:
Balance at end of year
Total stockholders’ equity
See accompanying notes to the consolidated financial statements.
98
NEW YORK COMMUNITY BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Provision for loan losses
Depreciation and amortization
(Accretion of discounts) amortization of premiums, net
Amortization of core deposit intangibles
Net gain on sales of securities
Net gain on sales of loans
Gain on business disposition
Gain on business acquisition
Stock plan-related compensation
Loss on OTTI of securities recognized in earnings
Changes in assets and liabilities:
Decrease in deferred tax asset, net
Decrease in other assets
Increase (decrease) in other liabilities
Origination of loans held for sale
Proceeds from sales of loans originated for sale
Net cash provided by (used in) operating activities
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from repayment of securities held to maturity
Proceeds from repayment of securities available for sale
Proceeds from sale of securities held to maturity
Proceeds from sale of securities available for sale
Purchase of securities held to maturity
Purchase of securities available for sale
Net redemption (purchase) of Federal Home Loan Bank stock
Net (increase) decrease in loans
Purchase of premises and equipment, net
Net cash acquired in business transactions
Net cash (used in) provided by investing activities
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in deposits
Net (decrease) increase in short-term borrowed funds
Net decrease in long-term borrowed funds
Tax effect of stock plans
Cash dividends paid on common stock
Treasury stock purchases
Net cash received from stock option exercises
Proceeds from issuance of common stock, net
Net cash provided by (used in) financing activities
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
Supplemental information:
Cash paid for interest
Cash paid for income taxes
Non-cash investing and financing activities:
Transfers to other real estate owned from loans
Years Ended December 31,
2011
2012
2010
$ 501,106 $ 480,037 $ 541,017
62,988
25,471
(2,788)
19,644
(2,041)
(193,227)
--
--
20,721
--
38,713
33,108
6,597
(10,925,837)
10,991,561
576,016
2,468,377
426,258
--
822,618
(3,133,279)
(932,997)
21,083
(1,363,967)
(38,761)
--
(1,730,668)
100,420
23,535
(1,337)
26,066
(36,608)
(80,304)
(9,823)
--
16,735
18,124
28,270
126,654
(126,812)
(7,151,083)
7,416,333
830,207
2,799,160
221,077
284,406
862,755
(2,753,777)
(1,151,639)
(44,214)
(1,488,025)
(40,746)
100,027
(1,210,976)
102,903
20,112
3,642
31,266
(22,430)
(137,361)
--
(2,883)
15,764
1,971
36,396
59,774
9,214
(10,864,188)
10,135,124
(69,679)
4,117,849
872,548
--
23,098
(4,034,384)
--
54,315
173,459
(48,641)
140,895
1,299,139
2,551,867
(312,000)
(218,222)
589
(438,539)
(3,522)
--
--
1,580,173
425,521
2,001,737
(898,001)
500,000
(1,173,074)
2,349
(434,366)
(4,054)
5,436
28,935
(1,972,775)
(743,315)
2,670,857
$ 2,427,258 $ 2,001,737 $ 1,927,542
465,079
1,062,000
(637,703)
2,679
(436,914)
(3,696)
3,519
--
454,964
74,195
1,927,542
$667,905
286,550
$686,245
152,115
$790,233
307,850
$91,441
$230,677
$82,374
Note:
Excluding the core deposit intangible and FDIC loss share receivable, the fair values of non-cash assets acquired, and
of liabilities assumed, in the acquisition of Desert Hills Bank on March 26, 2010 were $230.5 million and $442.5
million, respectively.
See accompanying notes to the consolidated financial statements.
99
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 240 branches,
four of which operate directly under the Community Bank name. The remaining 236 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
valuation of interest rate lock commitments; the evaluation of goodwill for impairment; the evaluation of other-than-
temporary impairment (“OTTI”) of 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 accompanying consolidated financial statements include the accounts of the Company and its wholly-
owned subsidiaries. All inter-company accounts and transactions are eliminated in consolidation. The Company
currently has unconsolidated subsidiaries in the form of four 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, certain reclassifications have been made to prior-year amounts to conform to the current-year
presentation.
100
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash and Cash Equivalents
For cash flow reporting purposes, cash and cash equivalents include cash on hand, amounts due from banks,
and money market investments, which include federal funds sold and reverse repurchase agreements with original
maturities of less than 90 days. At December 31, 2012 and 2011, the Company’s cash and cash equivalents totaled
$2.4 billion and $2.0 billion, respectively. Included in cash and cash equivalents at those dates were $1.7 billion and
$1.2 billion of interest-bearing deposits in other financial institutions, primarily consisting of balances due from the
Federal Reserve Bank of New York. Also included in cash and cash equivalents at December 31, 2012 and 2011
were federal funds sold of $8.9 million and $5.8 million, respectively. In addition, the Company had $549.7 million
and $646.5 million in pledged reverse repurchase agreements outstanding at December 31, 2012 and 2011,
respectively.
In accordance with the monetary policy of the Board of Governors of the Federal Reserve System, the
Company was required to maintain reserves with the Federal Reserve Bank of New York of $134.3 million and
$115.6 million, respectively, at December 31, 2012 and 2011, in the form of deposits and vault cash. The Company
was in compliance with this requirement at both dates.
Securities Held to Maturity and Available for Sale
The securities portfolio consists of mortgage-backed securities and collateralized mortgage obligations
(together, “mortgage-related securities”) and debt and equity securities (together, “other securities”). Securities that
are classified as “available for sale” are carried at estimated fair value, with any unrealized gains and losses, net of
taxes, reported as accumulated other comprehensive income or loss in stockholders’ equity. Securities that the
Company has the positive intent and ability to hold to maturity are classified as “held to maturity” and are carried at
amortized cost.
The fair values of the Company’s securities are affected by changes in interest rates, credit spreads, and
market illiquidity. In general, as interest rates rise, the fair value of fixed-rate securities will decline; as interest rates
fall, the fair value of fixed-rate securities will increase. The Company conducts a periodic review and evaluation of
the securities portfolio to determine if the decline in the fair value of any security below its carrying value is other
than temporary.
Under OTTI accounting requirements issued by the Financial Accounting Standards Board (the “FASB”),
unless the Company has the intent to sell, or it is more likely than not that it will be required to sell a security before
recovery, an OTTI is recognized as a realized loss on the income statement to the extent that the decline in fair value
is credit-related. The decline in value attributable to factors other than credit is charged to accumulated other
comprehensive loss, net of tax (“AOCL”). If there is a decline in fair value of a security below its carrying amount
and the Company has the intent to sell it, or it is more likely than not that it will be required to sell the security
before recovery, the entire amount of the decline in fair value is charged to earnings.
Premiums and discounts on securities are amortized to expense and accreted to income over the remaining
period to contractual maturity, using a method that approximates the interest method, and are adjusted for
anticipated prepayments. Dividend and interest income are recognized when earned. The cost of securities sold is
based on the specific identification method.
Federal Home Loan Bank Stock
As a member of the Federal Home Loan Bank (“FHLB”) of New York (the “FHLB-NY”), the Company is
required to hold shares of FHLB stock, which is carried at cost. The Company’s holding requirement varies based
on certain factors, primarily including its outstanding borrowings from the FHLB-NY. In connection with the FDIC-
assisted acquisitions of AmTrust and Desert Hills, the Company acquired stock in the FHLBs of Cincinnati and San
Francisco, respectively. The Company conducts a periodic review and evaluation of its FHLB stock to determine if
any impairment exists. The factors considered in this process include, among other things, significant deterioration
in earnings performance, credit rating, or asset quality; significant adverse changes in the regulatory or economic
environment; and other factors that raise significant concerns about the creditworthiness and the ability of an FHLB
to continue as a going concern.
101
Loans
Loans, net, are carried at unpaid principal balances, including unearned discounts, purchase accounting (i.e.,
acquisition-date fair value) adjustments, net deferred loan origination costs or fees, and the allowance for loan
losses.
One-to-four family loans held for sale are originated through the mortgage banking operation acquired in the
AmTrust acquisition and are sold primarily to government-sponsored enterprises (“GSEs”), with the servicing
typically retained. The loans originated by the mortgage banking operation are carried at fair value. The fair value of
held-for-sale loans is primarily based on quoted market prices for securities backed by similar types of loans. The
changes in fair value of these assets are largely driven by changes in interest rates subsequent to loan funding and
changes in the fair value of servicing associated with the mortgage loans held for sale.
The Company recognizes interest income on non-covered loans using the interest method over the life of the
loan. Accordingly, the Company defers certain loan origination and commitment fees, and certain loan origination
costs, and amortizes the net fee or cost as an adjustment to the loan yield over the term of the related loan. When a
loan is sold or repaid, the remaining net unamortized fee or cost is recognized in interest income.
Prepayment penalty income is recorded in interest income and only when cash is received. Accordingly, there
are no assumptions involved in the recognition of prepayment penalty income.
Two factors are considered in determining the amount of prepayment penalty income: the prepayment penalty
percentage set forth in the loan documents and the principal balance of the loan at the time of prepayment. The
volume of loans prepaying may vary from one period to another, often in connection with actual or perceived
changes in the direction of market interest rates. In a low interest rate environment, or when interest rates are
declining, prepayment penalties may increase as more borrowers opt to refinance. In a rising interest rate
environment, or when rates are perceived to be rising, prepayment penalties may increase as borrowers seek to lock
in current rates before they go up more.
A loan generally is classified as a “non-accrual” loan when it is over 90 days past due. When a loan is placed
on non-accrual status, the Company ceases the accrual of interest owed, and previously accrued interest is charged
against interest income. A loan is generally returned to accrual status when the loan is no longer past due and/or the
Company has reasonable assurance that the loan will be fully collectible. Interest income on non-accrual loans is
recorded when received in cash.
Allowances for Loan Losses
Allowance for Losses on Non-Covered Loans
The allowance for losses on non-covered loans is increased by provisions for non-covered loan losses that are
charged against earnings, and is reduced by net charge-offs and/or reversals, if any, that are credited to earnings.
Although loans are held by either the Community Bank or the Commercial Bank, and a separate loan loss allowance
is established for each, the total of the two allowances is available to cover all losses incurred. In addition, except as
otherwise noted below, the process for establishing the allowance for losses on non-covered loans is the same for
each of the Community Bank and the Commercial Bank. In determining the respective allowances for loan losses,
management considers the Community Bank’s and the Commercial Bank’s current business strategies and credit
processes, including compliance with guidelines approved by the respective Boards of Directors with regard to
credit limitations, loan approvals, underwriting criteria, and loan workout procedures.
The allowances for losses on non-covered loans are established based on our evaluation of the probable
inherent losses in our portfolio in accordance with GAAP, and are comprised of both specific valuation allowances
and general valuation allowances.
Specific valuation allowances are established based on management’s analyses of individual loans that are
considered impaired. If a loan is deemed to be impaired, management measures the extent of the impairment and
establishes a specific valuation allowance for that amount. A loan is classified as “impaired” when, based on current
information and events, it is probable that the Company will be unable to collect both the principal and interest due
under the contractual terms of the loan agreement. The Company applies this classification as necessary to loans that
are individually evaluated for impairment in its portfolios of multi-family; commercial real estate; acquisition,
development, and construction; and commercial and industrial loans. Smaller balance homogenous loans and loans
carried at the lower of cost or fair value are evaluated for impairment on a collective, rather than individual, basis.
102
The Company generally measures impairment on an individual loan and determines the extent to which a
specific valuation allowance is necessary by comparing the loan’s outstanding balance to either the fair value of the
collateral, less the estimated cost to sell, or the present value of expected cash flows, discounted at the loan’s
effective interest rate. A specific valuation allowance is established when the fair value of the collateral, net of the
estimated costs to sell, or the present value of the expected cash flows, is less than the recorded investment in the
loan.
The Company also follows a process to assign general valuation allowances to non-covered loan categories.
General valuation allowances are established by applying its loan loss provisioning methodology, and reflect the
inherent risk in outstanding held-for-investment loans. This loan loss provisioning methodology assesses various
factors in the process of determining which quantified risk factors are appropriate to use in arriving at the general
valuation allowances. The factors assessed begin with the historical loan loss experience for each of the major loan
categories the Company maintains. The Company’s historical loan loss experience is then adjusted by considering
qualitative or environmental factors that are likely to cause estimated credit losses associated with the existing
portfolio to differ from historical loss experience, including, but not limited to:
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
Changes in lending policies and procedures, including changes in underwriting standards and collection,
charge-off, and recovery practices;
Changes in international, national, regional, and local economic and business conditions, and developments
that affect the collectability of the portfolio, including the condition of various market segments;
Changes in the nature and volume of the portfolio and in the terms of loans;
Changes in the volume and severity of past due loans, the volume of non-accrual loans, and the volume and
severity of adversely classified or graded loans;
Changes in the quality of the Company’s loan review system;
Changes in the value of the underlying collateral for collateral-dependent loans;
The existence and effect of any concentrations of credit, and changes in the level of such concentrations;
Changes in the experience, ability, and depth of lending management and other relevant staff; and
The effect of other external factors, such as competition and legal and regulatory requirements, on the level
of estimated credit losses in the existing portfolio.
By considering the factors discussed above, the Company determines quantified risk factors that are applied to
each non-impaired loan or loan type in the loan portfolio to determine the general valuation allowances.
In recognition of prevailing macroeconomic and real estate market conditions, the time periods considered for
historical loss experience continue to be the last three years and the current period. The Company also evaluates the
sufficiency of the overall allocations used for the allowance for losses on non-covered loans by considering the loss
experience in the current and prior calendar year.
The process of establishing the allowances for losses on non-covered loans also involves:
(cid:120)
(cid:120)
Periodic inspections of the loan collateral by qualified in-house and external property appraisers/inspectors,
as applicable;
Regular meetings of executive management with the pertinent Board committee, during which observable
trends in the local economy and/or the real estate market are discussed;
(cid:120) Assessment of the aforementioned factors by the pertinent members of the Boards of Directors and
executive management when making a business judgment regarding the impact of anticipated changes on
the future level of loan losses; and
(cid:120) Analysis of the portfolio in the aggregate, as well as on an individual loan basis, taking into consideration
payment history, underwriting analyses, and internal risk ratings.
In order to determine their overall adequacy, each of the respective loan loss allowances is reviewed quarterly
by management and by the Mortgage and Real Estate Committee of the Community Bank’s Board of Directors (the
“Mortgage Committee”) or the Credit Committee of the Board of Directors of the Commercial Bank (the “Credit
Committee”), as applicable.
103
The Company charges off loans, or portions of loans, in the period that such loans, or portions thereof, are
deemed uncollectible. The collectability of individual loans is determined through an assessment of the financial
condition and repayment capacity of the borrower and/or through an estimate of the fair value of any underlying
collateral. Generally, the time period in which this assessment is made is within the same quarter that the loan is
considered impaired and quarterly thereafter. For non-real estate-related consumer credits, the following past-due
time periods determine when charge-offs are typically recorded: (1) closed-end credits are charged off in the quarter
that the loan becomes 120 days past due; (2) open-end credits are charged off in the quarter that the loan becomes
180 days past due; and (3) both closed-end and open-end credits are typically charged off in the quarter that the
credit is 60 days past the date we received notification that the borrower has filed for bankruptcy is received.
The level of future additions to the respective non-covered loan loss allowances is based on many factors,
including certain factors that are beyond management’s control. These include changes in economic and local
market conditions, including declines in real estate values, and increases in vacancy rates and unemployment.
Management uses the best available information to recognize losses on loans or to make additions to the loan loss
allowances; however, the Community Bank and/or the Commercial Bank may be required to take certain charge-
offs and/or recognize further additions to their loan loss allowances, based on the judgment of regulatory agencies
with regard to information provided to them during their examinations of the Banks.
Allowance for Losses on Covered Loans
The Company has elected to account for the loans acquired in the AmTrust and Desert Hills acquisitions (i.e.,
its covered loans) based on expected cash flows (Please see Note 4, “Loans,” for further information regarding these
acquisitions). This election is in accordance with FASB Accounting Standards Codification (“ASC”) Topic 310-30,
“Loans and Debt Securities Acquired with Deteriorated Credit Quality” (“ASC 310-30”). In accordance with ASC
310-30, the Company will maintain the integrity of a pool of multiple loans accounted for as a single asset and with
a single composite interest rate and an aggregate expectation of cash flows.
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 compared to the estimates made at the respective acquisition dates, the decrease in
the present value of expected cash flows will be recorded as a provision for covered loan losses charged to earnings,
and the allowance for covered loan losses will be increased. A related credit to non-interest income and an increase
in the FDIC loss share receivable will be recognized at the same time, and will be measured based on the loss
sharing agreement percentages. Conversely, if there is an increase in expected cash flows due to a decrease in
estimated credit losses compared to the estimates made at the respective acquisition dates, the increase in the present
value of expected cash flows will be recorded as a recovery for covered loan losses credited to earnings, and the
allowance for covered loan losses will be decreased to the extent previously recognized. A related debit to non-
interest income and a decrease in the FDIC loss share receivable will be recognized at the same time, and will be
measured based on the loss sharing agreement percentages.
FDIC Loss Share Receivable
The FDIC loss share receivable is initially recorded at fair value and is measured separately from the covered
loans acquired in the AmTrust and Desert Hills acquisitions as it is not contractually embedded in any of the covered
loans. The loss share receivable related to estimated future loan losses is not transferable should the Company sell a
loan prior to foreclosure or maturity. The fair value of the loss share receivable represents the present value of the
estimated cash payments expected to be received from the FDIC for future losses on covered assets, based on the
credit adjustment estimated for each covered asset and the loss sharing percentages. These cash flows are then
discounted at a market-based rate to reflect the uncertainty of the timing and receipt of the loss sharing
reimbursements from the FDIC. The amount ultimately collected for this asset is dependent upon the performance of
the underlying covered assets, the passage of time, and claims submitted to the FDIC.
The FDIC loss share receivable will be reduced as losses are recognized on covered loans and loss sharing
payments are received from the FDIC. Realized losses in excess of acquisition-date estimates will result in an
increase in the FDIC loss share receivable. Conversely, if realized losses are less than acquisition-date estimates, the
FDIC loss share receivable will be reduced.
104
Decreases in estimated reimbursements from the FDIC, if any, will be recognized in income prospectively
over the life of the related covered loans (or, if shorter, over the remaining term of the related loss sharing
agreement); related additions to the accretable yield on the covered loans will be recognized in income prospectively
over the lives of the loans. Increases in estimated reimbursements will be recognized in income in the same period
that they are identified and an allowance for loan losses for the related loans will be recorded.
Goodwill Impairment
Goodwill is presumed to have an indefinite useful life and is tested for impairment, rather than amortized, at
the reporting unit level, at least once a year. In addition to being tested annually, goodwill would be tested if there
were a “triggering event.” The goodwill impairment analysis is a two-step test. However, a company can, under
Accounting Standards Update (“ASU”) No. 2011-08, “Testing Goodwill for Impairment”, first assess qualitative
factors to determine whether it is necessary to perform the two-step quantitative goodwill impairment test. Under
this amendment, an entity would not be required to calculate the fair value of a reporting unit unless the entity
determined, based on a qualitative assessment, that it was more likely than not that its fair value was less than its
carrying amount. The Company did not elect to perform a qualitative assessment in 2012. The first step (“Step 1”) is
used to identify potential impairment, and involves comparing each reporting segment’s estimated fair value to its
carrying amount, including goodwill. If the estimated fair value of a reporting segment exceeds its carrying amount,
goodwill is considered not to be impaired. If the carrying amount exceeds the estimated fair value, there is an
indication of potential impairment and the second step (“Step 2”) is performed to measure the amount.
Step 2 involves calculating an implied fair value of goodwill for each reporting segment for which impairment
was indicated in Step 1. The implied fair value of goodwill is determined in a manner similar to the amount of
goodwill calculated in a business combination, i.e., by measuring the excess of the estimated fair value of the
reporting segment, as determined in Step 1, over the aggregate estimated fair values of the individual assets,
liabilities, and identifiable intangibles, as if the reporting segment were being acquired in a business combination at
the impairment test date. If the implied fair value of goodwill exceeds the carrying amount of goodwill assigned to
the reporting segment, there is no impairment. If the carrying amount of goodwill assigned to a reporting segment
exceeds the implied fair value of the goodwill, an impairment charge is recorded for the excess. An impairment loss
cannot exceed the carrying amount of goodwill assigned to a reporting segment, and the loss establishes a new basis
in the goodwill. Subsequent reversal of goodwill impairment losses is not permitted.
Quoted market prices in active markets are the best evidence of fair value and are used as the basis for
measurement, when available. Other acceptable valuation methods include present-value measurements based on
multiples of earnings or revenues, or similar performance measures. Differences in the identification of reporting
units and in valuation techniques could result in materially different evaluations of impairment.
For the purpose of goodwill impairment testing, management has determined that the Company has two
reporting segments: Banking Operations and Residential Mortgage Banking. All of our recorded goodwill has
resulted from prior acquisitions and, accordingly, is attributed to Banking Operations. There is no goodwill
associated with Residential Mortgage Banking, as this segment was acquired in our FDIC-assisted AmTrust
acquisition, which resulted in a bargain purchase gain. In order to perform our annual goodwill impairment test, we
determined the carrying value of the Banking Operations segment to be the carrying value of the Company and
compared it to the fair value of the Banking Operations segment as the fair value of the Company.
The Company performed its annual goodwill impairment test as of December 31, 2012 and found no
indication of goodwill impairment at that date.
Core Deposit Intangibles
Core deposit intangible (“CDI”) is a measure of the value of checking and savings deposits acquired in a
business combination. The fair value of the CDI stemming from any given business combination is based on the
present value of the expected cost savings attributable to the core deposit funding, relative to an alternative source of
funding. CDI is amortized over the estimated useful lives of the existing deposit relationships acquired, but does not
exceed 10 years. The Company evaluates such identifiable intangibles for impairment when an indication of
impairment exists. No impairment charges were required to be recorded in 2012, 2011, or 2010. If an impairment
loss is determined to exist in the future, the loss will be reflected as an expense in the Consolidated Statement of
Income and Comprehensive Income for the period in which such impairment is identified.
105
Premises and Equipment, Net
Premises, furniture, fixtures, and equipment are carried at cost, less the accumulated depreciation computed on
a straight-line basis over the estimated useful lives of the respective assets (generally 20 years for premises and three
to ten years for furniture, fixtures, and equipment). Leasehold improvements are carried at cost less the accumulated
amortization computed on a straight-line basis over the shorter of the related lease term or the estimated useful life
of the improvement.
Depreciation and amortization are included in “occupancy and equipment expense” in the Consolidated
Statements of Income and Comprehensive Income, and amounted to $25.5 million, $23.5 million, and $20.1 million,
respectively, in the years ended December 31, 2012, 2011, and 2010.
Mortgage Servicing Rights
The Company recognizes the right to service mortgage loans for others as a separate asset referred to as
mortgage servicing rights (“MSRs”). The Company has two classes of MSRs for which it separately manages the
economic risk: residential and securitized. (Please see Note 10, “Intangible Assets,” for additional information
regarding residential and securitized MSRs.) MSRs are generally obtained through the sale of one-to-four family
mortgage loans with servicing retained. The Company initially records MSRs at fair value. Subsequently, residential
MSRs are carried at fair value, with changes in fair value recorded as a component of non-interest income.
Securitized MSRs are subsequently carried at the lower of the initial carrying value, adjusted for amortization, or
fair value, and are amortized in proportion to, and over the period of, estimated net servicing income. Such MSRs
are periodically evaluated for impairment, based on the difference between the carrying amount and current fair
value of the MSR. If it is determined that impairment exists, the resultant loss is charged against earnings.
The Company bases the fair value of its MSRs on the present value of estimated future net servicing income
cash flows utilizing an internal valuation model. The Company estimates future net servicing income cash flows
with assumptions that market participants would use to estimate fair value, including estimates of prepayment
speeds, discount rates, default rates, refinance rates, servicing costs, escrow account earnings, contractual servicing
fee income, and ancillary income. The Company reassesses and periodically adjusts the underlying inputs and
assumptions in the model to reflect market conditions and assumptions that a market participant would consider in
valuing the MSR asset.
Changes in the fair value of MSRs primarily occur in connection with the collection/realization of expected
cash flows, as well as changes in valuation inputs and assumptions.
Offsetting Derivative Positions
In accordance with the applicable accounting guidance, the Company takes into account the impact of
collateral and master netting agreements that allow it to settle all derivative contracts held with a single counterparty
on a net basis, and to offset the net derivative position with the related collateral when recognizing derivative assets
and liabilities. As a result, the Company’s Statements of Financial Condition could reflect derivative contracts with
negative fair values included in derivative assets, and contracts with positive fair values that are included in
derivative liabilities.
Bank-Owned Life Insurance
The Company has purchased life insurance policies on certain employees. These bank-owned life insurance
(“BOLI”) policies are recorded in the Consolidated Statements of Condition at their cash surrender value. Income
from these policies and changes in the cash surrender value are recorded in “non-interest income” in the
Consolidated Statements of Income and Comprehensive Income. At December 31, 2012 and 2011, the Company’s
investment in BOLI was $867.3 million and $769.0 million, respectively. Included in the December 31, 2012
amount was $80.0 million of BOLI purchased during the year. The Company’s investment in BOLI generated
income of $30.5 million, $28.4 million, and $28.0 million, respectively, during the years ended December 31, 2012,
2011, and 2010.
Other Real Estate Owned
Real estate properties acquired through, or in lieu of, foreclosure are to be sold or rented, and are reported at
the lower of cost or fair value, less the estimated selling costs, at the date of acquisition. “Cost” represents the
unpaid balance of the loan at the acquisition date plus the expenses incurred to bring the property to a saleable
condition, when appropriate. Following foreclosure, management periodically performs a valuation of the property,
and the real estate is carried at the lower of the carrying amount or fair value, less the estimated selling costs.
106
Expenses and revenues from operations and changes in valuation, if any, are included in general and administrative
expense in the Consolidated Statements of Income and Comprehensive Income. At December 31, 2012 and 2011,
the Company had other real estate owned (“OREO”) of $74.4 million and $156.0 million, respectively. The
respective amounts include OREO of $45.1 million and $71.4 million that is covered under the Company’s FDIC
loss sharing agreements.
Income Taxes
Income tax expense (benefit) consists of income taxes that are currently payable and deferred income taxes.
Deferred income tax expense (benefit) is determined by recognizing deferred tax assets and liabilities for future tax
consequences attributable to temporary differences between the financial statement carrying amounts of existing
assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax
rates that are expected to apply to taxable income in years in which those temporary differences are expected to be
recovered or settled. The Company assesses the deferred tax assets and establishes a valuation allowance when
realization of a deferred asset is not considered to be “more likely than not.” The Company considers its expectation
of future taxable income in evaluating the need for a valuation allowance.
The Company estimates income taxes payable based on the amount it expects to owe the various tax
authorities (i.e., federal, state, and local). Income taxes represent the net estimated amount due to, or to be received
from, such tax authorities. In estimating income taxes, management assesses the relative merits and risks of the
appropriate tax treatment of transactions, taking into account statutory, judicial, and regulatory guidance in the
context of the Company’s tax position. In this process, management also relies on tax opinions, recent audits, and
historical experience. Although the Company uses the best available information to record income taxes, underlying
estimates and assumptions can change over time as a result of unanticipated events or circumstances such as changes
in tax laws and judicial guidance influencing its overall tax position.
Stock Options and Incentives
The Company did not grant any stock options during the years ended December 31, 2012, 2011, or 2010. As
all previously issued stock options had vested prior to 2008, there were no unvested stock options outstanding at any
time during those years, and, accordingly, no compensation and benefits expense relating to stock options was
recorded.
Under the New York Community Bancorp, Inc. 2012 Stock Incentive Plan (the “2012 Stock Incentive Plan”),
which was approved by the Company’s shareholders at its Annual Meeting on June 7, 2012, shares are available for
grant as stock options, restricted stock, or other forms of related rights.
At December 31, 2012, the Company had 18,987,673 shares available for grant under the 2012 Stock
Incentive Plan, including 1,030,673 shares that were transferred from the New York Community Bancorp, Inc. 2006
Stock Incentive Plan (the “2006 Stock Incentive Plan”), which was approved by the Company’s shareholders at its
Annual Meeting on June 7, 2006 and reapproved at its Annual Meeting on June 2, 2011. Compensation cost related
to restricted stock grants is recognized on a straight-line basis over the vesting period. For a more detailed discussion
of the Company’s stock-based compensation, please see Note 12, “Stock-Related Benefit Plans.”
Retirement Plans
The Company’s pension benefit obligations and post-retirement health and welfare benefit obligations, and the
related costs, are calculated using actuarial concepts in accordance with GAAP. The measurement of such
obligations and expenses requires that certain assumptions be made regarding several factors, most notably
including the discount rate and the expected return on plan assets. The Company evaluates these critical assumptions
on an annual basis. Other factors considered by the Company in its evaluation include retirement patterns, mortality,
turnover, and the rate of compensation increase.
Under GAAP, actuarial gains and losses, prior service costs or credits, and any remaining transition assets or
obligations that have not been recognized under previous accounting standards must be recognized in AOCL, until
they are amortized as a component of net periodic benefit cost. In addition, the measurement date (i.e., the date at
which plan assets and the benefit obligation are measured for financial reporting purposes) is required to be the
Company’s fiscal year-end, December 31st.
107
Earnings per Share (Basic and Diluted)
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 have earnings allocated to them. The following table
presents the Company’s computation of basic and diluted EPS for the years ended December 31, 2012, 2011, and
2010:
(in thousands, except share and per share amounts)
Net income
Less: Dividends paid on and earnings allocated to participating
securities
Earnings applicable to common stock
Weighted average common shares outstanding
Basic earnings per common share
Years Ended December 31,
2011
$480,037
2012
$501,106
2010
$541,017
(4,702)
$496,404
(3,614)
$476,423
(3,116)
$537,901
437,706,702 436,018,938 433,740,639
$1.24
$1.13
$1.09
Earnings applicable to common stock
$496,404
$476,423
$537,901
Weighted average common shares outstanding
Potential dilutive common shares (1)
Total shares for diluted earnings per share computation
Diluted earnings per common share and common share equivalents
5,540
437,706,702 436,018,938 433,740,639
445,860
437,712,242 436,143,134 434,186,499
$1.24
124,196
$1.13
$1.09
(1) Options to purchase 2,542,227 shares, 6,302,302 shares, and 2,815,862 shares, respectively, of the Company’s common
stock that were outstanding as of December 31, 2012, 2011, and 2010, at respective weighted average exercise prices of
$16.86, $16.30, and $19.19, were excluded from the respective computations of diluted EPS because their inclusion would
have had an antidilutive effect.
Impact of Recent Accounting Pronouncements
In February 2013, the FASB issued ASU No. 2013-02, “Comprehensive Income (Topic 220): Reporting of
Amounts Reclassified Out of Accumulated Other Comprehensive Income,” (“ASU No. 2013-02”). ASU 2013-02
does not change the current requirements for reporting net income or other comprehensive income in financial
statements; however, the amendments require an entity to provide information about the amounts reclassified out of
accumulated other comprehensive income by component. In addition, an entity is required to present, either on the
face of the statement where net income is presented or in the notes thereto, significant amounts reclassified out of
accumulated other comprehensive income by the respective line items of net income but only if the amount
reclassified is required under GAAP to be reclassified to net income in its entirety in the same reporting period. For
other amounts that are not required under GAAP to be reclassified in their entirety to net income, an entity is
required to cross-reference to other disclosures required under GAAP that provide additional detail about those
amounts. ASU No. 2013-02 is effective prospectively for reporting periods beginning after December 15, 2012. The
adoption of ASU 2013-02 is not expected to have an effect on the Company’s consolidated statement of condition or
results of operations.
In January 2013, the FASB issued ASU No. 2013-01, “Balance Sheet (Topic 210): Clarifying the Scope of
Disclosures about Offsetting Assets and Liabilities,” (“ASU No. 2013-01”). ASU No. 2013-01 clarifies that ordinary
trade receivables and receivables are not in the scope of ASU No. 2011-11, “Disclosures about Offsetting Assets and
Liabilities,” and that ASU 2011-11 applies only to derivatives, repurchase agreements and reverse purchase
agreements, and securities borrowing and securities lending transactions that are either offset in accordance with
specific criteria contained in the ASC or subject to a master netting arrangement or similar agreement. ASU 2013-01
is effective for fiscal years beginning on or after January 1, 2013, and interim periods within those annual periods.
108
An entity should provide the required disclosures retrospectively for all comparative periods presented. The
adoption of ASU 2013-01 is not expected to have an effect on the Company’s consolidated statement of condition or
results of operations.
In October 2012, the FASB issued ASU No. 2012-06, “Business Combinations (Topic 805): Subsequent
Accounting for an Indemnification Asset Recognized at the Acquisition Date as a Result of a Government-Assisted
Acquisition of a Financial Institution (a consensus of the FASB Emerging Issues Task Force),” (“ASU No. 2012-
06”). ASU No. 2012-06 amends FASB ASC 805-20, “Business Combinations—Identifiable Assets and Liabilities,
and Any Non-controlling Interest, formerly, SFAS No. 141(R),” by adding guidance specifically related to the
accounting for the support the Federal Deposit Insurance Corp. or the National Credit Union Administration provide
to buyers of failed banks. When a reporting entity recognizes an indemnification asset (in accordance with Subtopic
805-20) as a result of a government-assisted acquisition of a financial institution, and a change in the cash flows
expected to be collected on the indemnification asset subsequently occurs (as a result of a change in cash flows
expected to be collected on the assets subject to indemnification), the reporting entity should subsequently account
for the change in the measurement of the indemnification asset on the same basis as the change in the assets subject
to indemnification. Any amortization of changes in value should be limited to the contractual term of the
indemnification agreement (that is, the lesser of the term of the indemnification agreement or the remaining life of
the indemnified assets).
The amendments in ASU No. 2012-06 are effective for fiscal years, and interim periods within those years,
beginning on or after December 15, 2012. The amendments should be applied prospectively to any new
indemnification assets acquired after the date of adoption and to indemnification assets existing as of the date of
adoption arising from a government-assisted acquisition of a financial institution. The adoption of ASU No. 2012-06
is not expected to have a material effect on the Company’s consolidated statement of condition or results of
operations.
In July 2012, the FASB issued ASU No. 2012-02, “Intangibles—Goodwill and Other (Topic 350): Testing
Indefinite-Lived Intangible Assets for Impairment.” ASU 2012-02 simplifies the guidance for testing the decline in
the realizable value (impairment) of indefinite-lived intangible assets other than goodwill. Examples of intangible
assets subject to the guidance include indefinite-lived trademarks, licenses, and distribution rights. The amendments
allow an organization the option to first assess qualitative factors to determine whether or not it is necessary to
perform the quantitative impairment test. An organization electing to perform a qualitative assessment is no longer
required to calculate the fair value of an indefinite-lived intangible asset unless the organization determines, based
on a qualitative assessment, that it is “more likely than not” that the asset is impaired. ASU 2012-02 is effective for
annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. The adoption of
ASU 2012-02 did not have an effect on the Company’s consolidated statement of condition or results of operations.
In September 2011, the FASB issued ASU No. 2011-08, “Testing Goodwill for Impairment.” Under ASU
2011-08, entities can first assess qualitative factors to determine whether it is necessary to perform the two-step
quantitative goodwill impairment test. Under this amendment, an entity would not be required to calculate the fair
value of a reporting unit unless the entity determined, based on a qualitative assessment, that it was more likely than
not that its fair value was less than its carrying amount. The amendment includes a number of events and
circumstances for an entity to consider in conducting the qualitative assessment. ASU 2011-08 is effective for
annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. The
adoption of ASU 2011-08 on January 1, 2012 did not have an effect on the Company’s consolidated statement of
condition or results of operations.
In June 2011, the FASB issued ASU No. 2011-05, “Presentation of Comprehensive Income.” Under ASU
2011-05, an entity has the option to present the total of comprehensive income, the components of net income, and
the components of other comprehensive income, either in a single continuous statement of comprehensive income or
in two separate but consecutive statements. For both choices, an entity is required to present each component of net
income along with total net income, each component of other comprehensive income along with a total for other
comprehensive income, and a total amount for comprehensive income. ASU 2011-05 eliminates the option to
present the components of other comprehensive income as part of the statement of changes in stockholders’ equity,
but does not change the items that must be reported in other comprehensive income, or when an item of other
comprehensive income must be reclassified to net income. ASU 2011-05 is effective for fiscal years, and interim
periods within those years, beginning after December 15, 2011 and should be applied retroactively. The application
of this guidance only affects the presentation of the Company’s consolidated financial statements and has no impact
on its consolidated statement of condition or results of operations. In December 2011, the FASB delayed certain
aspects of ASU 2011-05 that pertain to how and where reclassification adjustments are presented. The adoption of
109
ASU No. 2011-05 is reflected in the Company’s Consolidated Statements of Income and Comprehensive Income for
the twelve months ended December 31, 2012.
NOTE 3: SECURITIES
The following table summarizes the Company’s portfolio of securities available for sale at December 31,
2012:
(in thousands)
Mortgage-Related Securities:
GSE certificates
GSE CMOs (1)
Private label CMOs
Total mortgage-related securities
Other Securities:
Municipal bonds
Capital trust notes
Preferred stock
Common stock
Total other securities
Total securities available for sale (2)
Amortized
Cost
$ 85,488
62,236
17,276
$ 165,000
$ 46,288
35,231
118,205
43,984
$ 243,708
$ 408,708
December 31, 2012
Gross
Gross
Unrealized
Unrealized
Loss
Gain
Fair Value
$ 7,197
4,924
140
$12,261
$
128
7,363
6,843
1,191
$15,525
$27,786
$
$
6
--
--
6
$ 120
4,159
30
2,913
$ 7,222
$ 7,228
$ 92,679
67,160
17,416
$ 177,255
$ 46,296
38,435
125,018
42,262
$ 252,011
$ 429,266
(1) Collateralized mortgage obligations
(2) At December 31, 2012, the non-credit portion of OTTI recorded in AOCL was $570,000 (before taxes).
As of December 31, 2012, the fair value of marketable equity securities included common stock of $42.3
million, corporate preferred stock of $124.7 million, and FHLMC preferred stock of $284,000. Common stock
primarily consisted of an investment in a large cap equity fund and certain other funds that are Community
Reinvestment Act (“CRA”) eligible. The FHLMC preferred stock was recognized by the Company as other-than-
temporarily impaired in the fourth quarter of 2008. At December 31, 2012, the fair value of municipal bonds
included $45.1 million of municipal bonds backed by FHLMC.
The following table summarizes the Company’s portfolio of securities available for sale at December 31,
2011:
(in thousands)
Mortgage-Related Securities:
GSE certificates
GSE CMOs
Private label CMOs
Total mortgage-related securities
Other Securities:
GSE debentures
Municipal bonds
Capital trust notes
Preferred stock
Common stock
Total other securities
Total securities available for sale (1)
Amortized
Cost
$ 97,642
62,373
25,306
$ 185,321
$ 456,969
1,188
36,754
--
42,863
$ 537,774
$ 723,095
December 31, 2011
Gross
Gross
Unrealized
Unrealized
Loss
Gain
Fair Value
$ 5,013
2,903
--
$ 7,916
$ 1,797
97
141
195
1,604
$ 3,834
$11,750
$
10
--
1,265
$ 1,275
$
--
--
4,692
--
4,216
$ 8,908
$10,183
$102,645
65,276
24,041
$191,962
$458,766
1,285
32,203
195
40,251
$532,700
$724,662
(1) At December 31, 2011, the non-credit portion of OTTI recorded in AOCL was $570,000 (before taxes).
110
The following tables summarize the Company’s portfolio of securities held to maturity at December 31, 2012
and 2011:
(in thousands)
Mortgage-Related Securities:
GSE certificates
GSE CMOs
Other mortgage-related securities
Total mortgage-related securities
Other Securities:
GSE debentures
Corporate bonds
Municipal bonds
Capital trust notes
Total other securities
Total securities held to maturity (1)
Amortized
Cost
Carrying
Amount
$1,253,769
1,898,228
3,220
$3,155,217
$ 1,253,769
1,898,228
3,220
$ 3,155,217
$1,129,618
72,501
16,982
131,513
$1,350,614
$4,505,831
$ 1,129,618
72,501
16,982
109,944
$ 1,329,045
$ 4,484,262
December 31, 2012
Gross
Unrealized
Gain
Gross
Unrealized
Loss
$ 87,860
104,764
--
$192,624
$ 15,739
12,504
245
14,588
$ 43,076
$235,700
$
$
5
--
--
5
$
--
--
--
13,997
$ 13,997
$ 14,002
Fair Value
$1,341,624
2,002,992
3,220
$3,347,836
$1,145,357
85,005
17,227
110,535
$1,358,124
$4,705,960
(1) Held-to-maturity securities are reported at a carrying amount equal to amortized cost less the non-credit portion of OTTI
recorded in AOCL. At December 31, 2012, the non-credit portion of OTTI recorded in AOCL was $21.6 million (before
taxes).
(in thousands)
Mortgage-Related Securities:
GSE certificates
GSE CMOs
Other mortgage-related securities
Total mortgage-related securities
Other Securities:
GSE debentures
Corporate bonds
Capital trust notes
Total other securities
Total securities held to maturity (1)
Amortized
Cost
Carrying
Amount
$ 660,945
2,331,916
3,379
$2,996,240
$ 660,945
2,331,916
3,379
$ 2,996,240
$ 633,258
54,759
153,334
$ 841,351
$3,837,591
$ 633,258
54,759
131,597
$ 819,614
$ 3,815,854
December 31, 2011
Gross
Unrealized
Gain
Gross
Unrealized
Loss
$ 47,064
93,216
--
$140,280
$ 14,878
2,826
12,362
$ 30,066
$170,346
$
$
--
--
--
--
$
146
12
19,857
$ 20,015
$ 20,015
Fair Value
$ 708,009
2,425,132
3,379
$3,136,520
$ 647,990
57,573
124,102
$ 829,665
$3,966,185
(1) At December 31, 2011, the non-credit portion of OTTI recorded in AOCL was $21.7 million (before taxes).
The Company had $469.1 million and $490.2 million of FHLB stock, at cost, at December 31, 2012 and 2011,
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 years ended December 31, 2012, 2011, and 2010:
(in thousands)
Gross proceeds
Gross realized gains
Gross realized losses
2012
December 31,
2010
2011
$822,618 $862,755 $23,098
22,438
8
28,116
11
2,041
--
In addition, during the twelve months ended December 31, 2011, the Company sold held-to-maturity
securities with gross proceeds of $284.4 million and gross realized gains of $8.5 million. These sales occurred
because the Company had either collected a substantial portion (at least 85%) of the initial principal balance or
because there was evidence of significant deterioration in the issuers’ creditworthiness.
111
The $149.0 million market value of the capital trust note portfolio at December 31, 2012 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 December 31, 2012:
(dollars in thousands)
Book value
Fair value
Unrealized gain (loss)
Lowest credit rating assigned to security
Number of banks/insurance companies
currently performing
Actual deferrals and defaults as a percentage of
original collateral
Expected deferrals and defaults as a percentage
of remaining performing collateral
Expected recoveries as a percentage of
remaining performing collateral
Excess subordination as a percentage of
remaining performing collateral
INCAPS
Funding I
Class B-2 Notes
$14,964
18,233
3,269
CCC
Alesco Preferred
Funding VII Ltd.
Class C-1 Notes
$ 553
336
(217)
C
Preferred Term
Securities II
Mezzanine Notes
$494
781
287
C
23
9%
22
--
21
58
18%
25
--
--
24
34%
19
2
--
At December 31, 2012, 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 21%. Excess subordination is calculated after taking into account the deferrals, defaults,
and recoveries noted in the table above, and indicates whether there is sufficient additional collateral to cover the
outstanding principal balance of the class owned, after taking into account these projected deferrals, defaults, and
recoveries.
As the following table indicates, there was no activity from December 31, 2011 through December 31, 2012 in
the credit loss component of OTTI on debt securities for which a non-credit component of OTTI was recognized in
AOCL. The beginning balance represents the credit loss component for debt securities for which OTTI occurred
prior to January 1, 2012. 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)
Beginning OTTI credit loss amount as of December 31, 2011
Add: Initial other-than-temporary credit losses
Subsequent other-than-temporary credit losses
Amount previously recognized in AOCL
Less: Realized losses for securities sold
Securities intended or required to be sold
Increases in expected cash flows on debt securities
Ending OTTI credit loss amount as of December 31, 2012
For the Twelve Months Ended
December 31, 2012
$219,978
--
--
--
--
--
--
$219,978
112
The following table summarizes the carrying amounts and estimated fair values of held-to-maturity debt securities, and the amortized costs and estimated
fair value of available-for-sale debt securities, at December 31, 2012, 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.
(dollars in thousands)
Held-to-Maturity Securities:
Carrying Amount at December 31, 2012
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
Due within one year
Due from one to five years
Due from five to ten years
Due after ten years
--
--
1,713,412
1,441,805
Total debt securities held to maturity $3,155,217
$
Available-for-Sale Securities: (3)
Due within one year
Due from one to five years
Due from five to ten years
Due after ten years
--
8,502
71,828
84,670
Total debt securities available for sale $ 165,000
$
%
--
3.20
3.72
3.44%
%
7.02
3.52
3.91
3.90%
$
--
--
1,129,618
--
$ 1,129,618
%
--
2.64
--
2.64%
$
$
--
--
--
--
--
--%
--
--
--
--%
$
--
1,690
--
15,292
$16,982
$
124
531
417
45,216
$46,288
--%
2.96
--
3.90
3.80%
5.90%
6.36
6.59
2.50
2.59%
$
--
--
46,668
135,777
$182,445
$
--
--
--
35,231
$ 35,231
--
--% $
1,719
--
3,034,851
4.04
6.22
1,669,390
5.66% $4,705,960
129
--% $
9,707
--
79,475
--
4.57
172,675
4.57% $ 261,986
(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 $494,000 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 December 31, 2012, the Company had commitments to purchase $22.4 million of securities, all of which were GSE securities.
113
The following tables present held-to-maturity and available-for-sale securities having a continuous unrealized loss position for less than twelve months or
for twelve months or longer as of December 31, 2012:
At December 31, 2012
(in thousands)
Temporarily Impaired Held-to-Maturity Debt Securities:
GSE debentures
GSE certificates
GSE CMOs
Corporate bonds
Capital trust notes
Total temporarily impaired held-to-maturity debt securities
Temporarily Impaired Available-for-Sale Securities:
Debt Securities:
GSE certificates
Private label CMOs
Corporate bonds
State, county, and municipal
Capital trust notes
Total temporarily impaired available-for-sale debt securities
Equity securities
Total temporarily impaired available-for-sale securities
Less than Twelve Months
Fair Value Unrealized Loss
Twelve Months or Longer
Total
Fair Value Unrealized Loss Fair Value Unrealized Loss
$
--
2,238
--
--
--
$ 2,238
$
297
--
--
45,096
--
$45,393
15,262
$60,655
$ --
5
--
--
--
5
$
$
5
--
--
120
--
$125
30
$155
$
--
--
--
--
32,148
$32,148
$
53
--
--
--
4,371
$ 4,424
28,989
$33,413
$
--
--
--
--
13,997
$13,997
$
1
--
--
--
4,159
$ 4,160
2,913(1)
$ 7,073
$
--
2,238
--
--
32,148
$ 34,386
$
350
--
--
45,096
4,371
$ 49,817
44,251
$ 94,068
$
--
5
--
--
13,997
$14,002
$
6
--
--
120
4,159
$ 4,285
2,943
$ 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 at that date. 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. The principal balance of investments in financial institutions totaled $1.7 million and the twelve months or longer unrealized loss was
$709,000.
114
The following tables present held-to-maturity and available-for-sale securities having a continuous unrealized loss position for less than twelve months or
for twelve months or longer as of December 31, 2011:
At December 31, 2011
(in thousands)
Temporarily Impaired Held-to-Maturity Debt Securities:
GSE debentures
GSE certificates
GSE CMOs
Corporate bonds
Capital trust notes
Total temporarily impaired held-to-maturity debt securities
Temporarily Impaired Available-for-Sale Securities:
Debt Securities:
GSE certificates
Private label CMOs
Corporate bonds
State, county, and municipal
Capital trust notes
Total temporarily impaired available-for-sale debt
securities
Equity securities
Total temporarily impaired available-for-sale securities
Less than Twelve Months
Fair Value Unrealized Loss
Twelve Months or Longer
Fair Value Unrealized Loss
Total
Fair Value Unrealized Loss
$ 62,601
--
--
4,987
971
$ 68,559
$
181
24,041
--
--
15,154
$ 39,376
784
$ 40,160
$ 146
--
--
12
43
$ 201
$
9
1,265
--
--
363
$ 1,637
40
$ 1,677
$
--
--
--
--
68,570
$ 68,570
$
13
--
--
--
9,810
$ 9,823
26,651
$ 36,474
$
--
--
--
--
19,814
$19,814
$
1
--
--
--
4,329
$ 4,330
4,176
$ 8,506
$ 62,601
--
--
4,987
69,541
$137,129
$
146
--
--
12
19,857
$20,015
$
194
24,041
--
--
24,964
$ 49,199
27,435
$ 76,634
$
10
1,265
--
--
4,692
$ 5,967
4,216
$10,183
115
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. 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
December 31, 2012, 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 December 31, 2012.
Other factors considered in determining whether a loss is temporary include the length of time and the extent
to which fair value has been below cost; the severity of the impairment; the cause of the impairment; the financial
condition and near-term prospects of the issuer; activity in the market of the issuer that may indicate adverse credit
conditions; and the forecasted recovery period using current estimates of volatility in market interest rates (including
liquidity and risk premiums).
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 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 December 31, 2012. 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.
At December 31, 2012, the Company’s equity securities portfolio consisted of perpetual preferred and
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 were primarily caused by market volatility. The
116
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 December 31, 2012.
Nonetheless, it is possible that these equity securities will perform worse than is currently expected, which could
lead to adverse changes in their fair values, or the failure of the securities to fully recover in value as presently
forecasted by management, causing the Company to 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
December 31, 2012 consisted of seven capital trust notes, three equity securities and one mortgage-backed security.
At December 31, 2011, the investment securities designated as having a continuous loss position for twelve months
or more consisted of one mortgage-related security, eleven capital trust notes, and six equity securities. At
December 31, 2012 and December 31, 2011, the combined market value of the respective securities represented
unrealized losses of $21.1 million and $28.3 million. At December 31, 2012, the fair value of securities having a
continuous loss position for twelve months or more was 24.5% below the collective amortized cost of $86.1 million.
At December 31, 2011, the fair value of such securities was 21.2% below the collective amortized cost of
$133.4 million.
NOTE 4: LOANS
The following table sets forth the composition of the loan portfolio at December 31, 2012 and 2011:
December 31, 2012
December 31, 2011
(dollars in thousands)
Non-Covered Loans Held for Investment:
Mortgage Loans:
Multi-family
Commercial real estate
Acquisition, development, and construction
One-to-four family
Total mortgage loans held for investment
Other Loans:
Commercial and industrial
Other
Total other loans held for investment
Total non-covered loans held for investment
Net deferred loan origination costs
Allowance for losses on non-covered loans
Non-covered loans held for investment, net
Covered loans
Allowance for losses on covered loans
Total covered loans, net
Loans held for sale
Total loans, net
Non-Covered Loans
Loans Held for Investment
Amount
$18,595,833
7,436,598
397,917
203,435
26,633,783
590,044
49,880
639,924
$27,273,707
10,757
(140,948)
$27,143,516
3,284,061
(51,311)
$ 3,232,750
1,204,370
$31,580,636
Percent of
Non-Covered
Loans Held for
Investment
68.18%
27.27
1.46
0.75
97.66
2.16
0.18
2.34
100.00%
Percent of
Non-Covered
Loans Held for
Investment
68.28%
26.85
1.75
0.50
97.38
2.35
0.27
2.62
100.00%
Amount
$17,430,628
6,855,244
445,671
127,361
24,858,904
599,986
69,907
669,893
$25,528,797
4,021
(137,290)
$25,395,528
3,753,031
(33,323)
$ 3,719,708
1,036,918
$30,152,154
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.
117
While multi-family and CRE loans represent the majority of the loans it originates for investment, the
Company also originates acquisition, development, and construction (“ADC”) loans, commercial and industrial
(“C&I”) loans, and one-to-four family loans for portfolio. ADC loans are primarily originated for multi-family and
residential tract projects in New York City and on Long Island, while secured and unsecured C&I loans are made to
small and mid-size businesses in New York City, Long Island, New Jersey, and, to a lesser extent, Arizona, for
working capital, business expansion, and the purchase of machinery and equipment.
Payments on multi-family and CRE loans generally depend on the income produced by the underlying
properties which, in turn, depends on their successful operation and management. Accordingly, the ability of the
Company’s borrowers to repay these loans may be impacted by adverse conditions in the local real estate market
and the local economy. While the Company generally requires that such loans be qualified on the basis of the
collateral property’s current cash flows, appraised value, and debt service coverage ratio, among other factors, there
can be no assurance that its underwriting policies will protect the Company from credit-related losses or
delinquencies.
ADC loans typically involve a higher degree of credit risk than loans secured by improved or owner-occupied
real estate. Accordingly, borrowers are required to provide a guarantee of repayment and completion, and loan
proceeds are disbursed as construction progresses, as certified by in-house or third-party engineers. The risk of loss
on an ADC loan is largely dependent upon the accuracy of the initial appraisal of the property’s value upon
completion of construction or development; the 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 C&I lending by underwriting such loans on the basis of
the cash flows produced by the business; by requiring that such loans be collateralized by various business assets,
including inventory, equipment, and accounts receivable, among others; and by requiring personal guarantees.
However, the capacity of a borrower to repay a C&I loan is substantially dependent on the degree to which his or
her business is successful. In addition, the collateral underlying such loans may depreciate over time, may not be
conducive to appraisal, or may fluctuate in value, based upon the results of operations of the business.
The 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 loan losses. These events, if they were to occur, would have an
adverse impact on the Company’s results of operations and its capital.
Until last year, the vast majority of the one-to-four family loans the Company held for investment were loans
that were acquired in merger transactions prior to 2009. However, in 2012, the Company began to originate hybrid
jumbo one-to-four family loans for investment that feature conservative loan-to-value ratios.
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 jumbo loans under contract for sale to other financial institutions.
Although the volume of jumbo loan originations 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. The unpaid principal balance of serviced
loans was $17.6 billion at December 31, 2012 and $13.1 billion at December 31, 2011.
118
Asset Quality
The following table presents information regarding the quality of the Company’s non-covered loans held for
investment at December 31, 2012:
(in thousands)
Multi-family
Commercial real estate
Acquisition, development, and
construction
One-to-four family
Commercial and industrial
Other
Total
Loans
30-89 Days
Past Due
$19,945
1,679
1,178
2,645
262
1,876
$27,585
Non-
Accrual
Loans
$163,460
56,863
12,091
10,945
17,372
599
$261,330
Loans
90 Days or More
Delinquent and
Still Accruing
Interest
$--
--
--
--
--
--
$--
Total Past
Due Loans
$183,405
58,542
Current
Loans
$18,412,428
7,378,056
Total Loans
Receivable
$18,595,833
7,436,598
13,269
13,590
17,634
2,475
$288,915
384,648
189,845
572,410
47,405
$26,984,792
397,917
203,435
590,044
49,880
$27,273,707
The following table presents information regarding the quality of the Company’s non-covered loans held for
investment at December 31, 2011:
(in thousands)
Multi-family
Commercial real estate
Acquisition, development, and
construction
One-to-four family
Commercial and industrial
Other
Total
Loans
30-89 Days
Past Due
$ 46,702
53,798
6,520
2,712
1,223
702
$111,657
Non-
Accrual
Loans
$205,064
68,032
29,886
11,907
8,827
2,099
$325,815
Loans
90 Days or More
Delinquent and
Still Accruing
Interest
$--
--
--
--
--
--
$--
Total Past
Due Loans
$251,766
121,830
Current
Loans
$17,178,862
6,733,414
Total Loans
Receivable
$17,430,628
6,855,244
36,406
14,619
10,050
2,801
$437,472
409,265
112,742
589,936
67,106
$25,091,325
445,671
127,361
599,986
69,907
$25,528,797
The following table summarizes, by credit quality indicator, the Company’s portfolio of non-covered loans
held for investment at December 31, 2012:
(in thousands)
Credit Quality Indicator:
Multi-Family
Commercial
Real Estate
Acquisition,
Development,
and Construction
One-to-Four
Family
Total
Mortgage
Segment
Commercial
and
Industrial
Other
Total Other
Loan Segment
Pass
Special mention
Substandard
Doubtful
Total
$18,285,333
55,280
253,794
1,426
$18,595,833
$7,337,315
26,523
72,260
500
$7,436,598
$383,557
--
11,277
3,083
$397,917
$195,232 $26,201,437
82,097
345,240
5,009
$203,435 $26,633,783
294
7,909
--
$561,541 $49,281
--
599
--
$590,044 $49,880
10,211
18,292
--
$610,822
10,211
18,891
--
$639,924
The following table summarizes, by credit quality indicator, the Company’s non-covered loan portfolio at
December 31, 2011:
(in thousands)
Credit Quality Indicator:
Multi-Family
Commercial
Real Estate
Acquisition,
Development,
and Construction
One-to-Four
Family
Total
Mortgage
Segment
Commercial
and
Industrial
Other
Total Other
Loan Segment
Pass
Special mention
Substandard
Doubtful
Total
$17,135,461
58,134
237,033
--
$17,430,628
$6,704,824
64,802
85,618
--
$6,855,244
$399,811
6,489
39,371
--
$445,671
$118,293 $24,358,389
129,425
371,090
--
$127,361 $24,858,904
--
9,068
--
$570,442 $67,808
--
2,099
--
$599,986 $69,907
13,234
15,928
382
$638,250
13,234
18,027
382
$669,893
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
119
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.
The interest income that would have been recorded under the original terms of non-accrual loans at the
respective year-ends, and the interest income actually recorded on these loans in the respective years is summarized
below:
(in thousands)
Interest income that would have been recorded
Interest income actually recorded
Interest income foregone
Troubled Debt Restructurings
2012
$11,814
(5,506)
$ 6,308
December 31,
2011
$14,072
(6,484)
$ 7,588
2010
$32,943
(7,055)
$25,888
In accordance with GAAP, 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 December 31, 2012 and
December 31, 2011:
(in thousands)
Loan Category:
Multi-family
Commercial real estate
Acquisition, development, and construction
Commercial and industrial
One-to-four family
Total
December 31, 2012
Accruing Non-Accrual
Total
Accruing
December 31, 2011
Non-Accrual
Total
$ 66,092
$114,556
37,457
--
1,463
--
39,127
510
--
1,101
$105,012
$155,294
$180,648
76,584
510
1,463
1,101
$260,306
$60,454
3,389
--
--
--
$63,843
$166,248
39,054
15,886
667
1,411
$223,266
$226,702
42,443
15,886
667
1,411
$287,109
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
December 31, 2012, loans on which concessions were made with respect to rate reductions and/or extensions of
maturity dates amounted to $239.2 million, and loans on which forbearance agreements were reached amounted to
$21.1 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.
The financial effects of TDRs granted for the twelve months ended December 31, 2012 were as follows:
(dollars in thousands)
Loan Category:
Multi-family
Commercial real estate
Acquisition, development, and construction
Other
Total/average
For the Twelve Months Ended December 31, 2012
Weighted Average Interest Rate
Number of
Loans
Pre-
Modification
Post-
Modification
Charge-off
Amount
6.19%
6.30
--
7.00
6.30%
5.32%
4.50
--
7.00
4.76%
$ 188
--
--
--
$ 188
4
3
--
1
8
120
During the twelve months ended December 31, 2012, there were no payment defaults on any loans that had
been modified as TDRs during the preceding twelve months. A loan is considered to be in payment default once it is
30 days contractually past due under the modified terms.
The Company does not consider a payment to be in default when the loan is in forbearance, or otherwise
granted a delay of payment, when the agreement to forebear or allow a delay of payment is part of a modification.
Subsequent to the modification, the loan is not considered to be in default until payment is contractually past due in
accordance with the modified terms. However, the Company does consider a loan with multiple modifications or
forbearance periods to be in default, and would also consider a loan to be in default if it were in bankruptcy or,
subsequent to modification, was partially charged off.
Covered Loans
The following table presents the carrying balance of covered loans acquired in the AmTrust and Desert Hills
acquisitions as of December 31, 2012:
(dollars in thousands)
Loan Category:
One-to-four family
All other loans
Total covered loans
Amount
$2,976,067
307,994
$3,284,061
Percent of
Covered Loans
90.6%
9.4
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 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 December 31, 2012 and 2011, the outstanding balance of covered loans (representing amounts owed to the
Company) totaled $3.9 billion and $4.5 billion, respectively. The carrying values of such loans were $3.3 billion and
$3.8 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 difference between the undiscounted contractual cash flows and the
undiscounted expected cash flows is referred to as the “non-accretable difference.” The non-accretable difference
represents an estimate of the credit risk in the loan portfolios at the acquisition date.
The accretable yield is affected by changes in interest rate indices for variable rate loans, changes in
prepayment assumptions, and changes in expected principal and interest payments over the estimated lives of the
loans. 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.
121
Changes in the accretable yield for covered loans for the twelve months ended December 31, 2012 were as
follows:
(in thousands)
Balance at beginning of period
Reclassification from non-accretable difference
Accretion
Balance at end of period
Accretable Yield
$1,365,978
13,633
(178,439)
$1,201,172
In the preceding table, the line item “reclassification from non-accretable difference” includes changes in cash
flows that the Company expects to collect due to changes in prepayment assumptions and changes in interest rates
on variable rate loans. As of the Company’s last periodic evaluation, prepayment assumptions decreased and,
accordingly, future expected interest cash flows increased. This resulted in an increase in the accretable yield. In
addition, these increases were partially offset by additional reductions in the expected cash flows from interest
payments, as interest rates continued to be very low. As a result, a large percentage of the Company’s covered
variable rate loans continue to reset at lower interest rates. In addition, the accretable yield increased due to
increases in the expected principal and interest payments driven by better expectations relating to credit.
In connection with the AmTrust and Desert Hills transactions, the Company has acquired 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 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 less 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
December 31, 2012 and 2011:
(in thousands)
Covered Loans 90 Days or More Past Due:
One-to-four family
Other loans
Total covered loans 90 days or more past due
December 31,
2012
2011
$297,265
15,308
$312,573
$314,821
32,621
$347,442
The following table presents information regarding the Company’s covered loans that were 30 to 89 days past
due at December 31, 2012 and 2011:
(in thousands)
Covered Loans 30-89 Days Past Due:
One-to-four family
Other loans
Total covered loans 30-89 days past due
December 31,
2012
2011
$75,129
6,057
$81,186
$103,495
8,494
$111,989
At December 31, 2012, the Company had $81.2 million of covered loans that were 30 to 89 days past due, and
covered loans of $312.6 million that were 90 days or more past due but considered to be performing due to the
application of the yield accretion method under ASC 310-30. The remaining portion of the Company’s covered loan
portfolio totaled $2.9 billion at December 31, 2012 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. Accordingly, loans that may have been classified
122
as non-performing loans by AmTrust or Desert Hills are no longer classified as non-performing because, at the
respective dates of acquisition, the Company believed that it would fully collect the new carrying value of these
loans. The new carrying value represents the contractual balance, reduced by the portion that is expected to be
uncollectible (referred to as the “non-accretable difference”) and by an accretable yield (discount) that is recognized
as interest income. It is important to note that management’s judgment is required in reclassifying loans subject to
ASC 310-30 as performing loans, and its 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 $18.0 million and $21.4 million during the twelve
months ended December 31, 2012 and 2011, respectively. These provisions were largely due to credit deterioration
in the acquired portfolios of one-to-four family and home equity loans. The provisions for losses on covered loans
were largely offset by FDIC indemnification income of $14.4 million and $17.6 million, respectively, recorded in
non-interest income for the twelve months ended December 31, 2012 and 2011.
NOTE 5: ALLOWANCES FOR LOAN LOSSES
The following table provides additional information regarding the Company’s allowances for losses on non-
covered loans and covered loans, based upon the method of evaluating loan impairment:
(in thousands)
Allowance for Loan Losses at December 31, 2012:
Individually evaluated for impairment
Collectively evaluated for impairment
Acquired loans with deteriorated credit quality
Total
Mortgage
Other
Total
$ 1,486
126,448
32,593
$160,527
$ 1,199
11,815
18,718
$31,732
$ 2,685
138,263
51,311
$192,259
(in thousands)
Allowance for Loan Losses at December 31, 2011:
Individually evaluated for impairment
Collectively evaluated for impairment
Acquired loans with deteriorated credit quality
Total
Mortgage
Other
Total
$ 490
121,505
14,227
$136,222
$ --
15,295
19,096
$34,391
$ 490
136,800
33,323
$170,613
The following table provides additional information regarding the methods used to evaluate the Company’s
loan portfolio for impairment:
(in thousands)
Loans Receivable at December 31, 2012:
Individually evaluated for impairment
Collectively evaluated for impairment
Acquired loans with deteriorated credit quality
Total
Mortgage
Other
Total
$ 309,694 $ 17,702 $ 327,396
26,946,311
26,324,088
3,284,061
2,976,067
$29,609,849 $ 947,919 $30,557,768
622,223
307,994
(in thousands)
Loans Receivable at December 31, 2011:
Individually evaluated for impairment
Collectively evaluated for impairment
Acquired loans with deteriorated credit quality
Total
Mortgage
Other
Total
$ 324,427 $ 5,995 $ 330,422
25,198,375
24,534,477
3,753,031
3,366,456
$28,225,360 $1,056,468 $29,281,828
663,898
386,575
123
Non-Covered Loans
The following table summarizes activity in the allowance for losses on non-covered loans for the twelve
months ended December 31, 2012 and 2011:
December 31,
(in thousands)
Balance, beginning of period
Charge-offs
Recoveries
Provision for loan losses
Balance, end of period
Total
2012
Mortgage
Other
$121,995 $15,295 $137,290
(46,218)
(6,685)
4,876
2,864
45,000
1,540
$127,934 $13,014 $140,948
(39,533)
2,012
43,460
Mortgage
$140,834
(93,448)
2,530
72,079
$121,995
2011
Other
$ 18,108
(12,462)
2,728
6,921
$ 15,295
Total
$ 158,942
(105,910)
5,258
79,000
$ 137,290
Please see Note 2, “Summary of Significant Accounting Polices” for additional information regarding the
Company’s allowance for losses on non-covered loans.
The following table presents additional information about the Company’s impaired non-covered loans at
December 31, 2012:
(in thousands)
Impaired Loans with No Related Allowance:
Multi-family
Commercial real estate
Acquisition, development, and construction
One-to-four family
Commercial and industrial
Total impaired loans with no related allowance
Recorded
Investment
$193,500
80,453
10,203
1,101
10,564
$295,821
Impaired Loans with An Allowance Recorded:
Multi-family
Commercial real estate
Acquisition, development, and construction
One-to-four family
Commercial and industrial
$ 20,307
2,914
1,216
--
7,138
Unpaid
Principal
Balance
$211,329
81,134
14,297
1,147
14,679
$322,586
$ 21,620
2,940
1,494
--
10,252
Related
Allowance
Average
Recorded
Investment
Interest
Income
Recognized
$ --
--
--
--
--
$--
$189,510
72,271
20,954
1,114
10,021
$293,870
$1,055
402
29
--
1,199
$ 27,894
3,693
1,877
--
1,785
$ 4,929
1,705
790
--
380
$ 7,804
$ 802
98
--
--
1,405
Total impaired loans with an allowance
recorded
Total Impaired Loans:
Multi-family
Commercial real estate
Acquisition, development, and construction
One-to-four family
Commercial and industrial
Total impaired loans
$ 31,575
$ 36,306
$2,685
$ 35,249
$ 2,305
$213,807
83,367
11,419
1,101
17,702
$327,396
$232,949
84,074
15,791
1,147
24,931
$358,892
$1,055
402
29
--
1,199
$2,685
$217,404
75,964
22,831
1,114
11,806
$329,119
$ 5,731
1,803
790
--
1,785
$10,109
124
The following table presents additional information about the Company’s impaired non-covered loans at
December 31, 2011:
(in thousands)
Impaired Loans with No Related Allowance:
Multi-family
Commercial real estate
Acquisition, development, and construction
One-to-four family
Commercial and industrial
Total impaired loans with no related allowance
Recorded
Investment
$235,100
49,258
26,680
1,127
5,995
$318,160
Impaired Loans with An Allowance Recorded:
Multi-family
Commercial real estate
Acquisition, development, and construction
One-to-four family
Commercial and industrial
$ 6,329
5,648
--
285
--
Unpaid
Principal
Balance
$244,684
52,152
27,143
1,520
10,240
$335,739
$ 6,899
5,857
--
373
--
Related
Allowance
Average
Recorded
Investment
Interest
Income
Recognized
$ --
--
--
--
--
$ --
$408
53
--
29
--
$321,994
63,032
42,600
2,649
6,442
$436,717
$ 10,893
10,297
14,495
71
1,837
$3,435
1,397
1,141
10
60
$6,043
$ 187
--
--
--
--
Total impaired loans with an allowance
recorded
Total Impaired Loans:
Multi-family
Commercial real estate
Acquisition, development, and construction
One-to-four family
Commercial and industrial
Total impaired loans
Covered Loans
$ 12,262
$ 13,129
$490
$ 37,593
$ 187
$241,429
54,906
26,680
1,412
5,995
$330,422
$251,583
58,009
27,143
1,893
10,240
$348,868
$408
53
--
29
--
$490
$332,887
73,329
57,095
2,720
8,279
$474,310
$3,622
1,397
1,141
10
60
$6,230
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 loan 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 loss sharing
agreement percentages.
The following table summarizes activity in the allowance for losses on covered loans for the years ended
December 31, 2012 and 2011:
(in thousands)
Balance, beginning of period
Provision for losses on covered loans
Balance, end of period
December 31,
2012
$33,323
17,988
$51,311
2011
$11,903
21,420
$33,323
125
NOTE 6: DEPOSITS
The following table sets forth a summary of the weighted average interest rates for each type of deposit at
December 31, 2012 and 2011:
December 31,
Amount
(dollars in thousands)
NOW and money market accounts $ 8,783,795
4,213,972
Savings accounts
9,120,914
Certificates of deposit
2,758,840
Non-interest-bearing accounts
$24,877,521
Total deposits
2012
Percent of
Total
35.31%
16.94
36.66
11.09
100.00%
Weighted
Average
Rate (1)
0.41%
0.31
1.18
--
0.63%
Amount
$ 8,757,198
3,953,859
7,373,263
2,241,334
$22,325,654
2011
Weighted
Average
Percent of
Rate (1)
Total
39.22% 0.39%
17.71
33.03
10.04
0.34
1.33
--
100.00% 0.65%
(1) Excludes the effect of purchase accounting adjustments for certificates of deposits (“CDs”).
At December 31, 2012 and 2011, the aggregate amounts of deposits that had been reclassified as loan balances
(i.e., overdrafts) were $5.2 million and $8.9 million, respectively.
The scheduled maturities of CDs at December 31, 2012 were as follows:
(in thousands)
1 year or less
More than 1 year through 2 years
More than 2 years through 3 years
More than 3 years through 4 years
More than 4 years through 5 years
Over 5 years
Total CDs
$5,581,619
2,045,703
819,780
391,625
228,046
54,141
$9,120,914
The following table presents a summary of CDs in amounts of $100,000 or more, by remaining term to
maturity, at December 31, 2012:
(in thousands)
Total
0 – 3
Months
$955,537
CDs of $100,000 or More Maturing Within
Over 6 to
12 Months
$1,019,888
Over 12
Months
$1,859,414
Over 3 to
6 Months
$825,245
Total
$4,660,084
At December 31, 2012 and 2011, the aggregate amounts of CDs of $100,000 or more were $4.7 billion and
$3.0 billion, respectively.
Included in total deposits at December 31, 2012 and 2011 were brokered deposits of $4.7 billion and $3.9
billion, respectively. Excluding purchase accounting adjustments, brokered deposits had weighted average interest
rates of 0.39% and 0.35% at the respective year-ends. Brokered money market accounts represented $3.7 billion and
$3.8 billion, respectively, of the year-end 2012 and 2011 totals and brokered non-interest bearing accounts
represented $189.2 million and $61.6 million, respectively. Brokered CDs represented $793.8 million of brokered
deposits at December 31, 2012. There were no brokered CDs at December 31, 2011.
126
NOTE 7: BORROWED FUNDS
The following table summarizes the Company’s borrowed funds at December 31, 2012 and 2011:
December 31,
2012
2011
(in thousands)
Wholesale borrowings:
FHLB advances
Repurchase agreements
Fed funds purchased
Total wholesale borrowings
Junior subordinated debentures
Senior notes
Preferred stock of subsidiaries
Total borrowed funds
$ 8,842,974
4,125,000
100,000
13,067,974
357,917
--
4,300
$13,430,191
$ 9,314,193
4,125,000
--
13,439,193
426,936
89,984
4,300
$13,960,413
FHLB advances at December 31, 2012 include acquisition accounting adjustments of $24.9 million.
Accrued interest on borrowed funds is included in “other liabilities” in the Consolidated Statements of
Condition, and amounted to $28.8 million and $48.0 million, respectively, at December 31, 2012 and 2011.
FHLB Advances
The contractual maturities and the next call dates of FHLB advances outstanding at December 31, 2012 were
as follows:
Contractual Maturity
Earlier of Contractual Maturity
or Next Call Date
(dollars in thousands)
Year of Maturity
2013
2014
2015
2016
2017
2018
2019
2022
2023
2025
Total FHLB advances
Amount
$1,235,265
103,802
600,763
250,000
2,243,517
934,384
1,865,000
1,410,000
200,000
243
$8,842,974
Weighted
Average
Interest Rate
0.53%
1.99
3.50
4.16
3.87
3.03
3.15
3.41
3.22
7.82
3.04%
Amount
$5,365,361
466
1,515,763
550,000
1,410,000
1,141
--
--
--
243
$8,842,974
Weighted
Average
Interest Rate
2.89%
0.66
3.13
3.20
3.41
3.01
--
--
--
7.82
3.04%
FHLB advances include both straight fixed-rate advances and advances under the FHLB convertible advance
program, which gives the FHLB the option of either calling the advance after an initial lock-out period of up to five
years and quarterly thereafter until maturity, or a one-time call at the initial call date.
At December 31, 2012, the Company had $1.2 billion in short-term FHLB advances with a weighted average
interest rate of 0.32%. During 2012, the average balance of short-term FHLB advances was $382.4 million, with a
weighted average interest rate of 0.36%, generating interest expense of $1.4 million. At December 31, 2011, the
Company had $1.6 billion in short-term FHLB advances with a weighted average interest rate of 0.31%. During
2011, the average balance of short-term FHLB advances was $164.8 million with a weighted average interest rate of
0.39%, generating interest expense of $650,000.
At December 31, 2012 and 2011, the Banks had combined unused lines of available credit of up to $5.8 billion
and $3.7 billion, respectively, with the FHLB-NY; the respective amounts exclude repurchase agreements. There
were no overnight advances outstanding at December 31, 2012 or 2011. At December 31, 2010, the Company had
$100.0 million outstanding in overnight advances with the FHLB-NY. In 2010, the average balances of overnight
advances amounted to $1.1 million and had a weighted average interest rate of 0.62%. FHLB-NY advances and
overnight advances are secured by pledges of certain eligible collateral, which may consist of eligible loans or
mortgage-related securities.
127
The interest expense on FHLB advances was $311.8 million, $313.4 million, and $318.8 million, respectively,
in the years ended December 31, 2012, 2011, and 2010.
Repurchase Agreements
The following table presents an analysis of the contractual maturities and the next call dates of the Company’s
outstanding repurchase agreements at December 31, 2012:
Contractual Maturity
Earlier of Contractual Maturity
or Next Call Date
(dollars in thousands)
Year of Maturity
2013
2015
2016
2017
2018
2020
Amount
$ 700,000
100,000
345,000
1,080,000
1,600,000
300,000
$4,125,000
Weighted Average
Interest Rate
3.04%
2.23
3.95
4.08
3.48
2.93
3.53%
Amount
$3,843,000
100,000
182,000
--
--
--
$4,125,000
Weighted Average
Interest Rate
3.57%
2.23
3.31
--
--
--
3.53%
The following table provides the contractual maturity and weighted average interest rate of repurchase
agreements, and the amortized cost and fair value (including accrued interest) of the securities collateralizing the
repurchase agreements, at December 31, 2012:
(dollars in thousands)
Contractual Maturity
Over 90 days
Amount
$4,125,000
Weighted Average
Interest Rate
3.53%
Amortized
Cost
$3,292,741
Fair Value
$3,494,445
Mortgage-Related and
Other Securities
GSE Debentures and
U.S. Treasury Obligations
Amortized
Cost
$935,084
Fair Value
$949,946
The Company had no short-term repurchase agreements outstanding at or during the years ended
December 31, 2012, 2011, or 2010.
At December 31, 2012 and 2011, the accrued interest on repurchase agreements amounted to $13.9 million
and $13.8 million, respectively. The interest expense on repurchase agreements was $148.3 million, $147.1 million,
and $148.4 million, respectively, in the years ended December 31, 2012, 2011, and 2010.
Federal Funds Purchased
At December 31, 2012, federal funds purchased outstanding amounted to $100.0 million. There were no
federal funds purchased outstanding at December 31, 2011.
In 2012, the average balance of federal funds purchased amounted to $21.6 million and had a weighted
average interest rate of 0.27%, generating interest expense of $58,000. There were no federal funds purchased
outstanding at or during the twelve months ended December 31, 2011 and 2010.
128
Junior Subordinated Debentures
At December 31, 2012 and 2011, the Company had $357.9 million and $426.9 million, respectively, of outstanding junior subordinated deferrable interest
debentures (“junior subordinated debentures”) held by statutory business trusts (the “Trusts”) that issued guaranteed capital securities. The capital securities
qualified as Tier 1 capital of the Company at that date. However, with the passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010,
(the “Dodd-Frank Act”) in July 2010, the qualification of capital securities as Tier 1 capital is expected to be phased out over a three-year period beginning
January 1, 2013 and ending January 1, 2016.
The Trusts are accounted for as unconsolidated subsidiaries in accordance with GAAP. The proceeds of each issuance were invested in a series of junior
subordinated debentures of the Company and the underlying assets of each statutory business trust are the relevant debentures. The Company has fully and
unconditionally guaranteed the obligations under each trust’s capital securities to the extent set forth in a guarantee by the Company to each trust. The Trusts’
capital securities are each subject to mandatory redemption, in whole or in part, upon repayment of the debentures at their stated maturity or earlier redemption.
The following junior subordinated debentures were outstanding at December 31, 2012:
Issuer
(dollars in thousands)
New York Community Capital
Trust V (BONUSESSM Units)
New York Community Capital
Trust X
PennFed Capital Trust III
New York Community Capital
Trust XI
Total junior subordinated
debentures
Interest Rate
of Capital
Securities and
Debentures
Junior
Subordinated
Debentures
Amount
Outstanding
Capital
Securities
Amount
Outstanding
Date of
Original Issue
Stated Maturity
First Optional
Redemption Date
6.000%
$143,991
$137,640
November 4, 2002 November 1, 2051 November 4, 2007 (1)
1.908
3.558
1.961
123,712
30,928
59,286
120,000
30,000
December 14, 2006 December 15, 2036 December 15, 2011 (2)
June 2, 2003
June 15, 2033
June 15, 2008 (2)
57,500
April 16, 2007
June 30, 2037
June 30, 2012 (2)
$357,917
$345,140
(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. A $2.3 million loss on debt redemption was recorded in
non-interest income in the fourth quarter of 2012.
129
On November 4, 2002, the Company completed a public offering of 5,500,000 Bifurcated Option Note Unit
SecuritiESSM (“BONUSES units”), including 700,000 that were sold pursuant to the exercise of the underwriters’
over-allotment option, at a public offering price of $50.00 per share. The Company realized net proceeds from the
offering of approximately $267.3 million. Each BONUSES unit consists of a capital security issued by New York
Community Capital Trust V, a trust formed by the Company, and a warrant to purchase 2.4953 shares of the
common stock of the Company (for a total of approximately 13.7 million common shares) at an effective exercise
price of $20.04 per share. Each capital security has a maturity of 49 years, with a coupon, or distribution rate, of
6.00% on the $50.00 per share liquidation amount. The warrants and capital securities were non-callable for five
years from the date of issuance and were not called by the Company when the five-year period passed on
November 4, 2007.
The gross proceeds of the BONUSES units totaled $275.0 million and were allocated between the capital
security and the warrant comprising such units in proportion to their relative values at the time of issuance. The
value assigned to the warrants, $92.4 million, was recorded as a component of additional “paid-in capital” in the
Company’s Consolidated Statement of Condition. The value assigned to the capital security component was $182.6
million. The $92.4 million difference between the assigned value and the stated liquidation amount of the capital
securities is treated as an original issue discount, and amortized to interest expense over the 49-year life of the
capital securities on a level-yield basis. At December 31, 2012, this discount totaled $67.7 million, reflecting the
exchange offer described below.
On July 29, 2009, the Company announced the commencement of an offer to exchange shares of its common
stock for any and all of the 5,498,544 outstanding BONUSES units (the “Offer to Exchange”). All holders of
BONUSES units were eligible to participate in the exchange offer. A total of 1,393,063 BONUSES units were
validly tendered, not withdrawn, and accepted in the exchange offer, representing 25.3% of the 5,498,544
BONUSES units outstanding at the exchange offer’s expiration date. As a result, trust preferred securities totaling
$48.6 million were extinguished in August 2009. In accordance with the terms of the Offer to Exchange, the
Company issued 3.4144 shares (the “Exchange Ratio”) of its common stock for each BONUSES unit that was
tendered, not withdrawn, and accepted. The Exchange Ratio was determined by adding (i) 2.4953 common shares to
(ii) 0.9191 common shares. The latter number was determined by dividing $10.00 by $10.88, the average of the
daily volume-weighted average price of the Company’s common stock during the five consecutive trading days
ending on August 21, 2009. The Company issued 4.8 million shares of its common stock as a result of the Offer to
Exchange.
In addition to the trust established in connection with the issuance of the BONUSES units, the Company has
three business trusts of which it owns all of the common securities: New York Community Capital Trust X, PennFed
Capital Trust III, and New York Community Capital Trust XI (the “Trusts”). The Trusts were formed for the
purpose of issuing Company Obligated Mandatorily Redeemable Capital Securities of Subsidiary Trusts Holding
Solely Junior Subordinated Debentures (collectively, the “Capital Securities”), and are described in the table on the
preceding page. Dividends on the Capital Securities are payable either quarterly or semi-annually and are deferrable,
at the Company’s option, for up to five years. As of December 31, 2012, all dividends were current. As each of the
Capital Securities was issued, the Trusts used the offering proceeds to purchase a like amount of Junior
Subordinated Deferrable Interest Debentures (the “Debentures”) of the Company. The Debentures bear the same
terms and interest rates as the related Capital Securities. The Company has fully and unconditionally guaranteed all
of the obligations of the Trusts. Under current applicable regulatory guidelines, a portion of the Capital Securities
qualifies as Tier I capital, and the remainder qualifies as Tier II capital.
Interest expense on junior subordinated debentures was $25.0 million, $24.4 million, and $24.4 million,
respectively, for the years ended December 31, 2012, 2011, and 2010.
Senior Notes
On December 22, 2008, the Company (on a stand-alone basis) completed an offering of $90.0 million of
2.55% Fixed Rate Senior Notes, due June 22, 2012, at a price of 99.875%. Interest was payable semi-annually in
arrears on June 22nd and December 22nd of each year, commencing on June 22, 2009. These notes were guaranteed
by the FDIC (for an annual assessment rate of 100 basis points, which was included in interest expense over the life
of the debt) under the Temporary Liquidity Guarantee Program (the “TLGP”) and were backed by the full faith and
credit of the United States. The senior note issued by the Company was its direct, unconditional, unsecured, and
general obligation, and ranked equally with all other senior unsecured indebtedness of the Company. On June 22,
2012, the Company repaid these notes in entirety upon maturity.
130
Interest expense on senior notes amounted to $1.6 million, $23.8 million, and $24.1 million in the years ended
December 31, 2012, 2011, and 2010, respectively.
Preferred Stock of Subsidiaries
On April 7, 2003, the Company, through its then second-tier subsidiary, CFS Investments New Jersey, Inc.,
completed the sale of $60.0 million of capital securities of Richmond County Capital Corporation (“RCCC”), a
wholly-owned real estate investment trust (“REIT”) of the Company, in a private placement transaction. The private
placement was made to “Qualified Institutional Buyers,” as defined in Rule 144A of the Rules and Regulations
promulgated under the Securities Act of 1933, as amended (the “33 Act”). The capital securities consisted of $50.0
million, or 500 shares, of Richmond County Capital Corporation Series C Non-Cumulative Exchangeable Floating-
Rate Preferred Stock, stated value of $100,000 per share (the “Series C Preferred Stock”). Dividends on the Series C
Preferred Stock are payable quarterly at an annual rate equal to LIBOR plus 3.25% of its stated value. The Series C
Preferred Stock may be redeemed by the Company on or after July 15, 2008. The dividend rate on the Series C
Preferred Stock resets quarterly.
In 2010, RCCC repurchased 202 shares, or $20.2 million, of its previously issued Series C Preferred Stock, as
a result of which the Company recorded a pre-tax gain of $1.5 million in non-interest income. In 2009, RCCC
repurchased 30 shares, or $3.0 million, of its previously issued Series C Preferred Stock, as a result of which the
Company recorded a pre-tax gain of $300,000 in non-interest income.
Dividends on preferred stock of subsidiaries are recorded as interest expense and amounted to $164,000;
$223,000; and $1.3 million, respectively, for the years ended December 31, 2012, 2011, and 2010.
NOTE 8: FEDERAL, STATE, AND LOCAL TAXES
The following table summarizes the components of the Company’s net deferred tax asset at December 31,
2012 and 2011:
(in thousands)
Deferred Tax Assets:
Allowance for loan losses
Compensation and related benefit obligations
Acquisition accounting and fair value adjustments on securities
(including OTTI)
Acquisition accounting adjustments on borrowed funds
Non-accrual interest
Restructuring and retirement of borrowed funds
Acquisition-related costs
Other
Gross deferred tax assets
Valuation allowance
Deferred tax asset after valuation allowance
Deferred Tax Liabilities:
Amortizable intangibles
Acquisition accounting and fair value adjustments on loans
(including the FDIC loss share receivable)
Mortgage servicing rights
Premises and equipment
Prepaid pension cost
Restructuring and retirement of borrowed funds
Other
Gross deferred tax liabilities
Net deferred tax asset
December 31,
2012
2011
$
97,844 $ 82,800
24,208
22,946
29,645
10,055
17,553
--
861
15,603
194,507
--
48,396
12,979
24,176
7,976
975
15,868
217,378
--
$ 194,507 $ 217,378
(8,554)
(14,816 )
(43,116)
(52,049)
(27,868)
(13,345)
(3,871)
(9,537)
(158,340)
(29,530 )
(40,543 )
(29,333 )
(6,670 )
--
(14,646 )
(135,538 )
36,167 $ 81,840
$
The net deferred tax asset, which is included in “other assets” in the Consolidated Statements of Condition at
December 31, 2012 and 2011, represents the anticipated federal, state, and local tax benefits that are expected to be
realized in future years upon the utilization of the underlying tax attributes comprising this balance.
131
The Company has determined that at December 31, 2012, all deductible temporary differences are more likely
than not to provide a benefit in reducing future federal, state, and local tax liabilities, as applicable.
The following table summarizes the Company’s income tax expense (benefit) for the years ended
December 31, 2012, 2011, and 2010:
(in thousands)
Federal – current
State and local – current
Total current
Federal – deferred
State and local – deferred
Total deferred
Total income tax expense
2010
2012
December 31,
2011
$206,748 $186,936 $220,785
33,636
254,421
34,862
7,171
42,033
$279,803 $254,540 $296,454
41,000
227,936
28,672
(2,068)
26,604
30,070
236,818
34,275
8,710
42,985
The following table presents a reconciliation of statutory federal income tax expense (benefit) to combined
actual income tax expense (benefit) for the years ended December 31, 2012, 2011, and 2010:
(in thousands)
Statutory federal income tax expense at 35%
State and local income taxes, net of federal income tax effect
Effect of tax deductibility of ESOP
Non-taxable income and expense of BOLI
Federal tax credits
Adjustments relating to prior tax years
Other, net
Total income tax expense
2012
$273,318
25,207
(6,910)
(10,578)
(2,083)
86
763
$279,803
December 31,
2011
2010
$257,102 $293,115
26,525
(5,243)
(9,805)
(5,955)
(1,342)
(841)
$254,540 $296,454
25,306
(6,739 )
(9,848)
(6,194)
(5,152)
65
FASB guidance prescribes a recognition threshold and measurement attribute for use in connection with the
obligation of a company to recognize, measure, present, and disclose in its financial statements uncertain tax
positions that the company has taken or expects to take on a tax return.
As of December 31, 2012, the Company had $24.2 million of unrecognized gross tax benefits. Gross tax
benefits do not reflect the federal tax effect associated with state tax amounts.
The total amount of net unrecognized tax benefits at December 31, 2012 that would affect the effective tax
rate, if recognized, was $15.7 million.
Interest and penalties (if any) related to the underpayment of income taxes are classified as a component of
income tax expense in the Consolidated Statements of Income and Comprehensive Income. During the years ended
December 31, 2012, 2011, and 2010, the Company recognized income tax expense (benefit) attributed to interest
and penalties of $1.0 million, $(2.5) million, and $(1.1) million, respectively. Accrued interest and penalties on tax
liabilities were $2.5 million at December 31, 2012 and $1.1 million at December 31, 2011.
The following table summarizes changes in the liability for unrecognized gross tax benefits for the years
ended December 31, 2012, 2011, and 2010:
(in thousands)
Uncertain tax positions at beginning of year
Additions for tax positions relating to current-year operations
Additions for tax positions relating to prior tax years
Subtractions for tax positions relating to prior tax years
Reductions in balance due to settlements
Uncertain tax positions at end of year
132
2012
December 31,
2010
2011
$ 8,922 $13,068 $ 9,327
6,103
2,221
(2,677)
(1,906)
$24,220 $ 8,922 $13,068
4,365
11,890
(457)
(500)
457
--
(4,603)
--
The Company and its acquired companies have filed tax returns in many states. The following are the more
significant tax filings that are open for examination:
(cid:120)
Federal tax filings of the Company for tax years 2009 through the present;
(cid:120) New York State tax filings of the Company for tax years 2007 through the present;
(cid:120) New York City tax filings of the Company for tax years 2011 through the present; and
(cid:120) New Jersey tax filings of the Company and certain acquired companies for tax years 2008 through the
present.
It is reasonably possible that there will be developments within the next twelve months that would necessitate
an adjustment to the balance of unrecognized tax benefits. Such adjustments include settlements of audits covering
federal taxes for years 2009 and 2010 and New York State taxes for years 2007 through 2009. The Company does
not expect that such settlements will have a material impact on tax expense. In addition, the Company does not
believe that the ranges of possible adjustments for each federal, state, and local tax position would be material.
As a savings institution, the Community Bank is subject to a special federal tax provision regarding its frozen
tax bad debt reserve. At December 31, 2012, the Community Bank’s federal tax bad debt base-year reserve was
$61.5 million, with a related net deferred tax liability of $21.5 million, which has not been recognized since the
Community Bank does not expect that this reserve will become taxable in the foreseeable future. Events that would
result in taxation of this reserve include redemptions of the Community Bank’s stock or certain excess distributions
by the Community Bank to the Company.
NOTE 9: COMMITMENTS AND CONTINGENCIES
Pledged Assets
At December 31, 2012 and 2011, the Company had pledged mortgage-related securities held to maturity with
carrying values of $3.1 billion and $3.0 billion, respectively. The Company also had pledged other securities held to
maturity with carrying values of $946.8 million and $617.8 million at the respective dates. In addition, the Company
had pledged available-for-sale mortgage-related securities and other securities with respective carrying values of
$151.2 million and $45.1 million at December 31, 2012, and of $158.0 million and $432.5 million at December 31,
2011. The pledged securities primarily serve as collateral for the Company’s repurchase agreements.
Loan Commitments and Letters of Credit
At December 31, 2012 and 2011, the Company had commitments to originate loans, including unused lines of
credit, of $3.0 billion and $2.7 billion, respectively. The majority of the outstanding loan commitments at
December 31, 2012 and 2011 had adjustable interest rates and were expected to close within 90 days of the
respective dates.
The following table sets forth the Company’s off-balance sheet commitments relating to outstanding loan
commitments and letters of credit at December 31, 2012:
(in thousands)
Mortgage Loan Commitments:
Multi-family and commercial real estate
Acquisition, development, and construction
One-to-four family held for sale
Total mortgage loan commitments
Other loan commitments
Total loan commitments
Commercial, performance, and financial stand-by letters of credit
Total commitments
$ 946,630
103,534
1,622,463
$2,672,627
278,644
$2,951,271
188,933
$3,140,204
Lease and License Commitments
At December 31, 2012, the Company was obligated under various non-cancelable operating lease and license
agreements with renewal options on properties used primarily for branch operations. The Company currently
expects to renew such agreements upon their expiration in the normal course of business. The agreements contain
periodic escalation clauses that provide for increases in the annual rent, commencing at various times during the
lives of the agreements, which are primarily based on increases in real estate taxes and cost-of-living indices.
133
The projected minimum annual rental commitments under these agreements, exclusive of taxes and other
charges, are summarized as follows:
(in thousands)
2013
2014
2015
2016
2017
2018 and thereafter
Total minimum future rentals
$ 24,701
22,245
17,908
16,124
13,936
40,547
$135,461
The rental expense under these leases is included in “occupancy and equipment expense” in the Consolidated
Statements of Income and Comprehensive Income, and amounted to approximately $32.5 million, $28.1 million,
and $34.0 million, respectively, in the years ended December 31, 2012, 2011, and 2010. Rental income on bank-
owned properties, netted in occupancy and equipment expense, was approximately $3.4 million, $3.8 million, and
$2.7 million in the corresponding periods. There was no minimum future rental income under non-cancelable
sublease agreements at December 31, 2012.
Financial Guarantees
The Company provides guarantees and indemnifications to its customers to enable them to complete a variety
of business transactions and to enhance their credit standings. These guarantees are recorded at their respective fair
values in “other liabilities” in the Consolidated Statements of Condition. The Company deems the fair value of the
guarantees to equal the consideration received.
The following table summarizes the Company’s guarantees and indemnifications at December 31, 2012:
(in thousands)
Financial stand-by letters of credit
Performance stand-by letters of credit
Commercial letters of credit
Expires
Within One
Year
$24,039
10,083
17,481
$51,603
Expires
After One
Year
$237
--
--
$237
Total
Outstanding
Amount
$24,276
10,083
17,481
$51,840
Maximum Potential
Amount of
Future Payments
$ 43,545
13,124
132,264
$188,933
The maximum potential amount of future payments represents the notional amounts that could be funded and
lost under the guarantees and indemnifications if there were a total default by the guaranteed parties or
indemnification provisions were triggered, as applicable, without consideration of possible recoveries under
recourse provisions or from collateral held or pledged.
The Company collects a fee upon the issuance of letters of credit. These fees are initially recorded by the
Company as a liability and are recognized as income at the expiration date of the respective guarantees. In addition,
the Company requires adequate collateral, typically in the form of real property or personal guarantees, upon its
issuance of performance, financial stand-by, and commercial letters of credit. In the event that a borrower defaults,
loans with recourse or indemnification obligate the Company to purchase loans that it has sold or otherwise
transferred to a third party. Also outstanding at December 31, 2012 were $96,000 of bankers’ acceptances.
In October 2007, Visa U.S.A., a subsidiary of Visa Inc. (“Visa”) completed a reorganization in contemplation
of its initial public offering, which was subsequently completed in March 2008. As part of that reorganization, the
Community Bank and the former Synergy Bank, along with many other banks across the nation, received shares of
common stock of Visa. In accordance with GAAP, the Company did not recognize any value for this common stock
ownership interest.
Visa claims that all Visa U.S.A. member banks are obligated to share with it in losses stemming from certain
litigation against it and certain other named member banks (the “Covered Litigation”). Visa continues to set aside
amounts in an escrow account to fund any judgments or settlements that may arise from the Covered Litigation, and
reduced the amount of shares allocated to the Visa U.S.A. member banks by amounts necessary to cover such
liability. Nevertheless, Visa U.S.A. member banks were required to record a liability for the fair value of their
related contingent obligation to Visa U.S.A., based on the percentage of their membership interest. The Company
134
has a $1.9 million liability based on its best estimate of the combined membership interest of the Community Bank
and the former Synergy Bank with regard to both settled and pending litigation in which Visa is involved.
Depending on the outcome of the Covered Litigation, the Company could incur an increase or a reduction in the
value of its membership interest in Visa, the amount of which is not expected to be material.
Derivative Financial Instruments
The Company uses various financial instruments, including derivatives, in connection with its strategies to
mitigate or reduce price risk resulting from changes in interest rates. The Company’s derivative financial
instruments consist of financial forward and futures contracts, interest rate lock commitments (“IRLCs”), swaps, and
options, and relate to mortgage banking operations, MSRs, and other risk management activities. These activities
vary in scope based on the level and volatility of interest rates, the type of assets held, and other changing market
conditions. Please see Note 14, “Derivative Financial Instruments.”
Legal Proceedings
The Company is involved in various legal actions arising in the ordinary course of its business. All such
actions, in the aggregate, involve amounts that are believed by management to be immaterial to the financial
condition and results of operations of the Company.
NOTE 10: INTANGIBLE ASSETS
Goodwill
Goodwill is presumed to have an indefinite useful life and is tested for impairment, rather than amortized, at
the reporting unit level, at least once a year. The changes in the carrying amount of goodwill for the years ended
December 31, 2012 and 2011 are as follows:
(in thousands)
Balance at beginning of year
Accounting adjustments
Balance at end of year
Core Deposit Intangibles
December 31,
2012
$2,436,131
--
$2,436,131
2011
$2,436,159
(28)
$2,436,131
As previously noted, the Company has CDI stemming from its various business combinations with other
banks and thrifts. CDI is a measure of the value of checking and savings deposits acquired in a business
combination. The fair value of the CDI stemming from any given business combination is based on the present value
of the expected cost savings attributable to the core deposit funding, relative to an alternative source of funding. CDI
is amortized over the estimated useful lives of the existing deposit relationships acquired, but does not exceed 10
years. The Company evaluates such identifiable intangibles for impairment when an indication of impairment exists.
No impairment charges were required to be recorded in 2012, 2011, or 2010. If an impairment loss is determined to
exist in the future, the loss will be recorded in non-interest expense in the Consolidated Statement of Income and
Comprehensive Income for the period in which such impairment is identified.
Mortgage Servicing Rights
The Company had MSRs of $144.7 million and $117.0 million, respectively, at December 31, 2012 and 2011.
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 Company uses various derivative instruments to mitigate the income statement-effect of
changes in fair value due to changes in valuation inputs and assumptions regarding its residential MSRs. MSRs do
not trade in an active open market with readily observable prices. Accordingly, the Company bases the fair value of
its MSRs on the present value of estimated future net servicing income cash flows utilizing an internal valuation
model. The Company estimates future net servicing income cash flows with assumptions that market participants
would use to estimate fair value, including estimates of prepayment speeds, discount rates, default rates, refinance
rates, servicing costs, escrow account earnings, contractual servicing fee income, and ancillary income. The
Company reassesses and periodically adjusts the underlying inputs and assumptions in the model to reflect market
conditions and assumptions that a market participant would consider in valuing the MSR asset.
135
The value of residential MSRs at any given time is significantly affected by the mortgage interest rates that are
then currently available in the marketplace which, in turn, influence mortgage loan prepayment speeds. During
periods of declining interest rates, the value of MSRs generally declines as an increase in mortgage refinancing
activity results in an increase in prepayments. Conversely, during periods of rising interest rates, the value of MSRs
generally increases as mortgage refinancing activity declines.
Securitized MSRs are carried at the lower of the initial carrying value, adjusted for amortization or fair value,
and are amortized in proportion to, and over the period of, estimated net servicing income. Such MSRs are
periodically evaluated for impairment, based on the difference between their carrying amount and their current fair
value. If it is determined that impairment exists, the resultant loss is charged against earnings.
The following table sets forth the changes in the balances of residential and securitized MSRs for the years
ended December 31, 2012 and 2011:
(in thousands)
Carrying value, beginning of year
Additions
Increase (decrease) in fair value:
For the Years Ended December 31,
2011
2012
Residential Securitized
Residential Securitized
$1,192
$106,186
$116,416
--
82,060
116,407
$ 596
--
Due to changes in interest rates and valuation assumptions
Due to other changes (1)
(20,938)
(67,365)
Amortization
Carrying value, end of period
--
$144,520
--
--
(403)
$ 193
(24,537)
(47,293)
--
$116,416
--
--
(596)
$ 596
(1) Includes net servicing cash flows and the passage of time.
The following table presents the key assumptions used in calculating the fair value of the Company’s
residential MSRs at the dates indicated:
Weighted Average Expected Life
Constant Prepayment Speed
Discount Rate
Primary Mortgage Rate to Refinance
Cost to Service (per loan per year):
Current
30-59 days delinquent
60-89 days delinquent
90-119 days delinquent
Over 120 days delinquent
December 31,
2012
2011
64 months
69 months
15.4%
10.5
3.6
$ 53
103
203
303
553
14.2%
10.0
4.1
$ 53
103
203
303
553
As noted above, there were no changes in the assumed servicing costs.
Analyses of CDI and MSRs
The following table summarizes the gross carrying and accumulated amortization amounts of the Company’s
CDI and MSRs as of December 31, 2012:
(in thousands)
Core deposit intangibles
Mortgage servicing rights
Total
Gross Carrying
Amount
$234,364
155,698
$390,062
Accumulated
Amortization
$(202,340)
(10,985)
$(213,325)
Net Carrying
Amount
$ 32,024
144,713
$176,737
For the year ended December 31, 2012, amortization expenses related to CDI totaled $19.6 million. The
Company assessed the useful lives of its intangible assets at December 31, 2012 and deemed them to be appropriate.
There were no impairment losses recorded for the years ended December 31, 2012, 2011, or 2010.
136
The following table summarizes the estimated future expense stemming from the amortization of the
Company’s CDI and MSRs:
(in thousands)
2013
2014
2015
2016
2017 and thereafter
Total remaining intangible assets
Core Deposit
Intangibles
$15,784
8,307
5,354
2,400
179
$32,024
Mortgage
Servicing Rights Total
$15,945
8,339
5,354
2,400
179
$32,217
$161
32
--
--
--
$193
137
NOTE 11: EMPLOYEE BENEFITS
Retirement Plans
On April 1, 2002, three separate pension plans for employees of the former Queens County Savings Bank, the
former CFS Bank, and the former Richmond County Savings Bank were merged together and renamed the “New
York Community Bancorp Retirement Plan” (the “New York Community Plan”). The pension plan for employees
of the former Roslyn Savings Bank was merged into the New York Community Plan on September 30, 2004. The
pension plan for employees of the former Atlantic Bank of New York was merged into the New York Community
Plan on March 31, 2008. The New York Community Plan covers substantially all employees who had attained
minimum age, service, and employment status requirements prior to the date when the individual plans were frozen
by the banks of origin. Once frozen, the plans ceased to accrue additional benefits, service, and compensation
factors, and became closed to employees who would otherwise have met eligibility requirements after the “freeze”
date. The New York Community Plan is subject to the provisions of ERISA.
The following tables set forth certain information regarding the New York Community Plan as of the dates
indicated:
(in thousands)
Change in Benefit Obligation:
Benefit obligation at beginning of year
Interest cost
Actuarial loss
Annuity payments
Settlements
Benefit obligation at end of year
Change in Plan Assets:
Fair value of assets at beginning of year
Actual return (loss) on plan assets
Contributions
Annuity payments
Settlements
Fair value of assets at end of year
Funded status (included in other assets)
Changes recognized in other comprehensive income for the year
ended December 31:
Amortization of prior service cost
Amortization of actuarial gain
Net actuarial loss arising during the year
Total recognized in other comprehensive loss for the year (pre-tax)
December 31,
2012
2011
$134,159
5,885
11,865
(6,252)
(3,043)
$142,614
$150,671
16,247
30,000
(6,252)
(3,043)
$187,623
$ 45,009
$116,566
5,964
19,852
(5,931)
(2,292)
$134,159
$142,204
(7,310)
24,000
(5,931)
(2,292)
$150,671
$ 16,512
$
--
(9,737)
8,874
$ (863)
$
--
(4,758)
39,693
$34,935
Accumulated other comprehensive loss (pre-tax) not yet recognized in
net periodic benefit cost at December 31:
Prior service cost
Actuarial loss, net
Total accumulated other comprehensive loss (pre-tax)
$
--
92,879
$ 92,879
$
--
93,742
$93,742
In 2013, an estimated $9.4 million of unrecognized net actuarial loss for the defined benefit pension plan will
be amortized from AOCL into net periodic benefit cost. The comparable amount recognized as net periodic benefit
cost in 2012 was $9.7 million. No prior service cost will be amortized in 2013 and none was amortized in 2012. The
discount rates used to determine the benefit obligation at December 31, 2012 and 2011 were 3.9% and 4.5%,
respectively.
The discount rate reflects rates at which the benefit obligation could be effectively settled. To determine this
rate, the Company considers rates of return on high-quality fixed-income investments that are currently available
and are expected to be available during the period until payment of the pension benefits. The expected future
payments are discounted based on a portfolio of high-quality rated bonds (above-median AA curve) for which the
Company relies on the Citigroup Pension Liability Index published as of the measurement date.
138
The components of net periodic pension expense (credit) were as follows for the years indicated:
(in thousands)
Components of Net Periodic Pension Expense (Credit):
Interest cost
Expected return on plan assets
Amortization of prior service cost
Amortization of unrecognized actuarial loss
Net periodic pension expense (credit)
Years Ended December 31,
2011
2012
2010
$ 5,885
(13,256)
--
9,737
$ 2,366
$ 5,964
(12,531)
--
4,758
$ (1,809)
$ 6,057
(11,463)
196
5,145
(65)
$
The following table indicates the weighted average assumptions used in determining the net periodic benefit
cost for the years indicated:
Discount rate
Expected rate of return on plan assets
Years Ended December 31,
2010
2011
2012
5.8%
5.3%
4.5%
9.0
9.0
9.0
New York Community Plan assets are invested in diversified investment funds of the RSI Retirement Trust
(the “Trust”), a private placement fund, and in the Company’s common stock. At December 31, 2012 and 2011, the
amounts of New York Community Plan assets invested in the Company’s common stock were $18.9 million and
$15.5 million, respectively.
The Trust has been given discretion by the Plan Sponsor to determine the appropriate strategic asset allocation
versus plan liabilities, as governed by the Trust’s Statement of Investment Objectives and Guidelines (the
“Guidelines”). The investment funds include a series of equity and bond mutual funds or commingled trust funds,
each with its own investment objectives, strategies, and risks, as detailed in the Guidelines.
The long-term investment objectives are to maintain plan assets at a level that will sufficiently cover long-
term obligations and to generate a return on plan assets that will meet or exceed the rate at which long-term
obligations grow. A broadly diversified combination of equity and fixed income portfolios and various risk
management techniques are used to help achieve these objectives.
In addition, significant consideration is given to the Plan’s funding levels when determining the overall asset
allocation. If the New York Community Plan is considered to be well funded, approximately 65% of its assets are
allocated to equity securities (i.e., equity mutual funds) and approximately 35% to debt securities (i.e., bond mutual
funds). These were the allocations at December 31, 2012. If the New York Community Plan does not satisfy the
criteria for a well funded plan, approximately 50% of the Plan’s assets are allocated to equity securities and
approximately 50% are allocated to debt securities. Asset rebalancing is scheduled when the investment mix varies
more than 10% in either direction from the target.
The investment goal of the New York Community Plan is to achieve investment results that will contribute to
the proper funding of the pension plan by exceeding the rate of inflation over the long-term. In addition, investment
managers for the Trust are expected to provide above-average performance when compared to their peers.
Performance volatility is monitored, and risk and volatility are further managed by the distinct investment objectives
of each of the Trust funds and by the diversification within each fund.
139
The following table presents information about the investments held by the New York Community Plan as of
December 31, 2012:
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
Significant Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
(in thousands)
Mutual Funds – Equity:
Large-cap value (1)
Small-cap core (2)
Large-cap growth (3)
International core (4)
Common/Collective Trusts – Equity:
Large-cap core (5)
Large-cap value (6)
Large-cap growth (7)
Common/Collective Trusts – Fixed Income:
Market duration fixed (8)
Equity Securities:
Company common stock
Total
$ 15,237
19,107
11,045
20,360
17,386
8,936
11,743
64,953
$15,237
19,107
11,045
20,360
--
--
--
--
18,856
$187,623
18,856
$84,605
$
--
--
--
--
17,386
8,936
11,743
64,953
--
$103,018
$--
--
--
--
--
--
--
--
--
$--
(1) This category consists of investments whose sector and industry exposures are maintained within a narrow band around the
Russell 1000 Index. The portfolio holds approximately 150 stocks.
(2) This category contains stocks whose sector weightings are maintained within a narrow band around those of the Russell
2000 Index. The portfolio will typically hold more than 150 stocks.
(3) This category consists of a mutual fund that seeks fast growing large-cap companies with sustainable franchises and
positive price momentum. The portfolio holds 60 to 90 stocks.
(4) This category has investments in medium to large non-US companies, including high quality, durable growth companies and
companies based in countries with stable economic and political systems.
(5) This fund tracks the performance of the S&P 500 Index by purchasing the securities represented in the Index in
approximately the same weightings as the Index.
(6) This category contains large-cap stocks with above-average yield. The portfolio typically holds between 60 and 70 stocks.
(7) This category consists of a portfolio of between 35 and 55 stocks of fast-growing, predictable, and cyclical large cap growth
companies.
(8) This category consists of an index fund that tracks the Barclays Capital U. S. Aggregate Bond Index. The fund invests in
treasury, agency, corporate, mortgage-backed, and asset-backed securities.
Current Asset Allocation
The weighted average asset allocations for the New York Community Plan as of December 31, 2012 and 2011
were as follows:
Equity securities
Debt securities
Total
At December 31,
2011
2012
63%
65%
37
35
100%
100%
Determination of Long-Term Rate of Return
The long-term rate of return on assets assumption was set based on historical returns earned by equities and
fixed income securities, and adjusted to reflect expectations of future returns as applied to the New York
Community Plan’s target allocation of asset classes. Equity securities and fixed income securities were assumed to
earn real rates of return in the ranges of 5% to 9% and 2% to 6%, respectively. The long-term inflation rate was
estimated to be 3%. When these overall return expectations are applied to the New York Community Plan’s target
allocation, the result is an expected rate of return of 7% to 11%.
Expected Contributions
The Company does not expect to contribute to the New York Community Plan in 2013.
140
Expected Future Annuity Payments
The following annuity payments, which reflect expected future service, as appropriate, are expected to be paid
by the New York Community Plan during the years indicated:
(in thousands)
2013
2014
2015
2016
2017
2018 and thereafter
Total
Qualified Savings Plan
$ 6,871
6,955
7,029
7,061
7,200
37,166
$72,282
The Company maintains a defined contribution qualified savings plan (the “New York Community Bank
Employee Savings Plan”) in which all full-time employees are able to participate after one year of service and
having attained age 21. No matching contributions have been made by the Company to this plan since 1993.
Post-Retirement Health and Welfare Benefits
The Company offers certain post-retirement benefits, including medical, dental, and life insurance (the
“Health & Welfare Plan”) to retired employees, depending on age and years of service at the time of retirement. The
costs of such benefits are accrued during the years that an employee renders the necessary service.
The following tables set forth certain information regarding the Health & Welfare Plan as of the dates
indicated:
(in thousands)
Change in Benefit Obligation:
Benefit obligation at beginning of year
Service cost
Interest cost
Actuarial loss
Premiums/claims paid
Benefit obligation at end of year
Change in Plan Assets:
Fair value of assets at beginning of year
Employer contribution
Premiums/claims paid
Fair value of assets at end of year
Funded status (included in other liabilities)
Changes recognized in other comprehensive income for the year
ended December 31:
Amortization of prior service cost
Amortization of actuarial gain
Net loss arising during the year
Total recognized in other comprehensive loss for the year (pre-tax)
Accumulated other comprehensive loss (pre-tax) not yet recognized
in net periodic benefit cost at December 31:
Prior service cost
Actuarial loss, net
Total accumulated other comprehensive loss (pre-tax)
December 31,
2012
2011
$ 17,155
7
641
3,293
(777)
$ 20,319
$
--
777
(777)
$
--
$(20,319)
$ 15,998
5
720
1,291
(859)
$ 17,155
$
--
859
(859)
$
--
$(17,155)
$ 249
(505)
3,293
$3,037
$ 249
(411)
1,292
$1,130
$ (2,280)
10,265
$ 7,985
$ (2,529)
7,477
$ 4,948
The discount rates used in the preceding table were 3.5% and 3.9%, respectively, at December 31, 2012 and
2011.
141
The estimated net actuarial loss and the prior service liability that will be amortized from AOCL into net
periodic benefit cost over the next fiscal year are $657,000 and $249,000, respectively.
The following table indicates the components of net periodic benefit cost for the years indicated:
(in thousands)
Components of Net Periodic Benefit Cost:
Service cost
Interest cost
Amortization of prior service cost
Amortization of unrecognized actuarial loss
Net periodic benefit cost
Years Ended December 31,
2010
2012
2011
$
7
641
(249)
505
$ 904
$ 5
720
(249)
411
$ 887
$
4
793
(249)
313
$ 861
The following table indicates the weighted average assumptions used in determining the net periodic benefit
cost for the years indicated:
Discount rate
Current medical trend rate
Ultimate trend rate
Year when ultimate trend rate will be reached
Years Ended December 31,
2010
2011
2012
5.3%
4.7%
3.9 %
9.0
9.0
8.0
5.0
5.0
5.0
2014
2015
2018
Had the assumed medical trend rate at December 31, 2012 increased by 1% for each future year, the
accumulated post-retirement benefit obligation at that date would have increased by $935,000, and the aggregate of
the benefits earned and the interest components of 2012 net post-retirement benefit cost would each have increased
by $22,000. Had the assumed medical trend rate decreased by 1% for each future year, the accumulated post-
retirement benefit obligation at December 31, 2012 would have declined by $790,000, and the aggregate of the
benefits earned and the interest components of 2012 net post-retirement benefit cost would each have declined by
$18,000.
Investment Policies and Strategies
The Health & Welfare Plan is an unfunded non-qualified pension plan and is not expected to hold assets for
investment at any time. Any contributions made to the Health & Welfare Plan will be used to immediately pay plan
premiums and claims as they come due.
Expected Contributions
The Company expects to contribute $1.5 million to the Health & Welfare Plan to pay premiums and claims for
the fiscal year ending December 31, 2013.
Expected Future Payments for Premiums and Claims
The following amounts are currently expected to be paid for premiums and claims during the years indicated
under the Health & Welfare Plan:
(in thousands)
2013
2014
2015
2016
2017
2018 and thereafter
Total
$ 1,515
1,499
1,472
1,449
1,416
6,460
$13,811
142
NOTE 12: STOCK-RELATED BENEFIT PLANS
New York Community Bank Employee Stock Ownership Plan
All full-time employees who have attained 21 years of age and who have completed twelve consecutive
months of credited service are eligible to participate in the ESOP, with benefits vesting on a seven-year basis,
starting with 20% in the third year of employment and continuing in 20% increments in each successive year.
Benefits are payable upon death, retirement, disability, or separation from service, and may be paid in stock.
However, in the event of a change in control, as defined in the ESOP, any unvested portion of benefits shall vest
immediately.
At the time of the Community Bank’s conversion to stock form, the Company loaned $19.4 million to the
ESOP to purchase 18,583,440 shares of the Company’s common stock. In the second quarter of 2002, the Company
loaned an additional $14.8 million to the ESOP for the purchase of 906,667 shares of the common stock that were
sold in a secondary offering on May 14, 2002. In 2002, the two loans were consolidated into a single loan which was
being repaid at a fixed interest rate of 4.75% over a period of time not to exceed 30 years. In 2010, the loan was
fully repaid and all the remaining shares were released from the suspense account and allocated to participants.
In 2012, 2011, and 2010, the Company allocated 644,007; 526,800; and 472,841 shares, respectively, to
participants in the ESOP. For the years ended December 31, 2012, 2011, and 2010, the Company recorded ESOP-
related compensation expense of $8.4 million, $7.0 million, and $9.1 million, respectively.
Supplemental Executive Retirement Plan
In 1993, the Community Bank established a Supplemental Executive Retirement Plan (“SERP”), which
provided additional unfunded, non-qualified benefits to certain participants in the ESOP in the form of Company
common stock. The SERP was frozen in 1999. Trust-held assets, consisting entirely of Company common stock,
amounted to 1,369,311 and 1,268,102 shares at December 31, 2012 and 2011, respectively. The cost of these shares
is reflected as a reduction of paid-in capital in excess of par in the Consolidated Statements of Condition. The
Company recorded no SERP-related compensation expense in 2012, 2011, or 2010.
Stock Incentive and Stock Option Plans
At December 31, 2012, the Company had a total of 18,987,673 shares available for grants as options,
restricted stock, or other forms of related rights under the New York Community Bancorp, Inc. 2012 Stock Incentive
Plan (the “2012 Stock Incentive Plan”), which was approved by the Company’s shareholders at its Annual Meeting
on June 7, 2012. Included in this amount were 1,030,673 shares that were transferred from the New York
Community Bancorp, Inc. 2006 Stock Incentive Plan (the “2006 Stock Incentive Plan”), which was approved by the
Company’s shareholders at its Annual Meeting on June 7, 2006 and reapproved at its Annual Meeting on June 2,
2011. Under the 2012 Stock Incentive Plan, the Company granted 43,000 shares of restricted stock during the twelve
months ended December 31, 2012 with an average fair value of $12.53 per share on the date of grant. During 2012,
2011, and 2010, respectively, 2,040,425, 1,693,000, and 463,000 shares of restricted stock were granted under the
2006 Stock Incentive Plan. The respective shares had average fair values of $12.78, $18.30, and $16.29 per share on
the respective grant dates. The shares of restricted stock that were granted during the years ended December 31,
2012, 2011, and 2010 vest over a period of five years. Compensation and benefits expense related to the restricted
stock grants is recognized on a straight-line basis over the vesting period, and totaled $20.7 million, $16.7 million,
and $10.9 million, respectively, for the years ended December 31, 2012, 2011, and 2010.
The following table provides a summary of activity with regard to restricted stock awards in the year ended
December 31, 2012:
Unvested at beginning of year
Granted
Vested
Cancelled
Unvested at end of year
For the Year Ended
December 31, 2012
Weighted Average
Grant Date
Fair Value
16.11
12.78
15.45
14.02
14.73
Number of Shares
3,429,440
2,083,425
(1,034,420)
(92,200)
4,386,245
143
As of December 31, 2012, unrecognized compensation cost relating to unvested restricted stock totaled $50.1
million. This amount will be recognized over a remaining weighted average period of 3.2 years.
In addition, the Company had eight stock option plans at December 31, 2012: the 1993 and 1997 New York
Community Bancorp, Inc. Stock Option Plans; the 1993 Haven Bancorp, Inc. Stock Option Plan; the 1998
Richmond County Financial Corp. Stock Compensation Plan; the 2001 Roslyn Bancorp, Inc. Stock-based Incentive
Plan; the 1998 Long Island Financial Corp. Stock Option Plan; and the 2003 and 2004 Synergy Financial Group
Stock Option Plans (all eight plans collectively referred to as the “Stock Option Plans”). All stock options granted
under the Stock Option Plans expire ten years from the date of grant.
The Company uses the modified prospective approach to recognize compensation costs related to share-based
payments at fair value on the date of grant, and recognizes such costs in the financial statements over the vesting
period during which the employee provides service in exchange for the award. As there were no unvested options at
any time during 2012, 2011, or 2010, the Company did not record any compensation and benefits expense relating to
stock options during those years.
The Company either issues new shares of common stock to satisfy the exercise of options or the Company
may also use common stock held in Treasury to satisfy the exercise of options. In the event that Treasury stock is
used, the difference between the average cost of Treasury shares and the exercise price is recorded as an adjustment
to retained earnings or paid-in capital on the date of exercise. At December 31, 2012, 2011, and 2010, respectively,
there were 2,641,344; 9,006,944; and 12,443,676 stock options outstanding. The number of shares available for
future issuance under the Stock Option Plans was 11,840 at December 31, 2012.
The status of the Stock Option Plans at December 31, 2012 and changes that occurred during the year ended at
that date are summarized below:
Stock options outstanding, beginning of year
Granted
Exercised
Expired/forfeited
Stock options outstanding, end of year
Options exercisable at year-end
For the Year Ended December 31, 2012
Weighted Average
Number of Stock
Exercise Price
Options
$15.60
9,006,944
--
--
--
--
15.15
(6,365,600)
16.68
2,641,344
16.68
2,641,344
The intrinsic value of stock options outstanding and exercisable at December 31, 2012 was $96,000. There
were no stock options exercised during the twelve months ended December 31, 2012. The intrinsic values of options
exercised during the years ended December 31, 2011 and 2010 were $1.9 million and $3.1 million, respectively.
NOTE 13: FAIR VALUE MEASUREMENTS
FASB issued guidance that, among other things, defined fair value, established a consistent framework for
measuring fair value, and expanded disclosure for each major asset and liability category measured at fair value on
either a recurring or non-recurring basis. The guidance clarified that fair value is an “exit” price, representing the
amount that would be received when selling an asset, or paid when transferring a liability, in an orderly transaction
between market participants. Fair value is thus a market-based measurement that should be determined based on
assumptions that market participants would use in pricing an asset or liability. As a basis for considering such
assumptions, the FASB established a three-tier fair value hierarchy, which prioritizes the inputs used in measuring
fair value as follows:
(cid:120)
(cid:120)
(cid:120)
Level 1 – Inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or
liabilities in active markets.
Level 2 – Inputs to the valuation methodology include quoted prices for similar assets and liabilities in
active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for
substantially the full term of the financial instrument.
Level 3 – Inputs to the valuation methodology are significant unobservable inputs that reflect a company’s
own assumptions about the assumptions that market participants use in pricing an asset or liability.
144
A financial instrument’s categorization within this valuation hierarchy is based upon the lowest level of input
that is significant to the fair value measurement.
The following tables present assets and liabilities that were measured at fair value on a recurring basis as of
December 31, 2012 and 2011, and that were included in the Company’s Consolidated Statements of Condition at
those dates:
Fair Value Measurements at December 31, 2012 Using
Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Netting
Adjustments
Total
Fair Value
$
92,679
67,160
17,416
$ 177,255
$
$
--
--
--
--
$
$
$
--
--
--
--
--
--
--
--
--
124,734
39,682
$164,416
$164,416
$
--
--
--
46,296
19,866
284
2,580
$
69,026
$ 246,281
$
--
--
--
5,939
$1,204,370
--
--
2,910
$
--
--
--
--
18,569
--
--
$ 18,569
$ 18,569
$
--
144,520
21,446
--
$
$
$
$
$
$
--
--
--
--
--
--
--
--
--
--
--
--
--
$
92,679
67,160
17,416
$ 177,255
$
--
--
--
46,296
38,435
125,018
42,262
$ 252,011
$ 429,266
--
--
--
(4,730)
$1,204,370
144,520
21,446
4,119
$ (2,303)
$
(5,808)
$
--
$ 4,730
$
(3,381)
(in thousands)
Mortgage-Related Securities
Available for Sale:
GSE certificates
GSE CMOs
Private label CMOs
Total mortgage-related securities
Other Securities Available for Sale:
GSE debentures
Corporate bonds
U. S. Treasury obligations
State, county, and municipal
Capital trust notes
Preferred stock
Common stock
Total other securities
Total securities available for sale
Other Assets:
Loans held for sale
Mortgage servicing rights
Interest rate lock commitments
Derivative assets-other(1)
Liabilities:
Derivative liabilities
(1) Includes the $5.3 million cost to purchase Treasury options.
145
Fair Value Measurements at December 31, 2011 Using
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Netting
Adjustments
Total
Fair Value
$
$
--
--
--
--
$
--
--
--
--
37,026
$ 37,026
$ 37,026
$
--
--
--
9,004
$ 102,645
65,276
24,041
$ 191,962
$ 458,766
1,285
14,125
195
3,225
$ 477,596
$ 669,558
$1,036,918
--
--
762
$
$
--
--
--
--
$
--
--
18,078
--
--
$ 18,078
$ 18,078
$
--
116,416
15,633
--
$--
--
--
$--
$--
--
--
--
--
$--
$--
$--
--
--
--
$ 102,645
65,276
24,041
$ 191,962
$ 458,766
1,285
32,203
195
40,251
$ 532,700
$ 724,662
$1,036,918
116,416
15,633
9,766
$
(20)
$
(11,742)
$
--
$--
$ (11,762)
(in thousands)
Mortgage-Related Securities
Available for Sale:
GSE certificates
GSE CMOs
Private label CMOs
Total mortgage-related securities
Other Securities Available for Sale:
GSE debentures
State, county, and municipal
Capital trust notes
Preferred stock
Common stock
Total other securities
Total securities available for sale
Other Assets:
Loans held for sale
Mortgage servicing rights
Interest rate lock commitments
Derivative assets-other
Liabilities:
Derivative liabilities
The Company reviews and updates the fair value hierarchy classifications for its assets on a quarterly basis.
Changes from one quarter to the next that are related to the observability of inputs to a fair value measurement may
result in a reclassification from one hierarchy level to another.
A description of the methods and significant assumptions utilized in estimating the fair values of available-for-
sale securities follows:
Where quoted prices are available in an active market, securities are classified within Level 1 of the valuation
hierarchy. Level 1 securities include highly liquid government securities, exchange-traded securities, and
derivatives.
If quoted market prices are not available for the specific security, then fair values are estimated by using
pricing models. These pricing models primarily use market-based or independently sourced market parameters as
inputs, including, but not limited to, yield curves, interest rates, equity or debt prices, and credit spreads. In addition
to observable market information, models incorporate transaction details such as maturity and cash flow
assumptions. Securities valued in this manner would generally be classified within Level 2 of the valuation
hierarchy, and primarily include such instruments as mortgage-related and corporate debt securities.
In certain cases where there is limited activity or less transparency around inputs to the valuation, securities
are classified within Level 3 of the valuation hierarchy. In valuing capital trust notes, which may include pooled
trust preferred securities, collateralized debt obligations (“CDOs”), and certain single-issue capital trust notes, the
determination of fair value may require benchmarking to similar instruments or analyzing default and recovery rates.
Therefore, capital trust notes are valued using a model based on the specific collateral composition and cash flow
structure of the securities. Key inputs to the model consist of market spread data for each credit rating, collateral
type, and other relevant contractual features. In instances where quoted price information is available, the price is
considered when arriving at a security’s fair value. Where there is limited activity or less transparency around the
inputs to the valuation of preferred stock, the valuation is based on a discounted cash flow model.
Periodically, the Company uses fair values supplied by independent pricing services to corroborate the fair
values derived from the pricing models. In addition, the Company reviews the fair values supplied by independent
146
pricing services, as well as their underlying pricing methodologies, for reasonableness. The Company challenges
pricing services’ valuations that appear to be unusual or unexpected.
The Company carries loans held for sale originated by the Residential Mortgage Banking segment at fair
value, in accordance with ASC 825, “Financial Instruments.” The fair value of held-for-sale loans is primarily based
on quoted market prices for securities backed by similar types of loans. The changes in fair value of these assets are
largely driven by changes in interest rates subsequent to loan funding, and changes in the fair value of servicing
associated with the mortgage loans held for sale. Loans held for sale are classified within Level 2 of the valuation
hierarchy.
MSRs do not trade in an active open market with readily observable prices. The Company bases the fair value
of its MSRs on the present value of estimated future net servicing income cash flows, utilizing an internal valuation
model. The Company estimates future net servicing income cash flows with assumptions that market participants
would use to estimate fair value, including estimates of prepayment speeds, discount rates, default rates, refinance
rates, servicing costs, escrow account earnings, contractual servicing fee income, and ancillary income. The
Company reassesses and periodically adjusts the underlying inputs and assumptions in the model to reflect market
conditions and assumptions that a market participant would consider in valuing the MSR asset. MSR fair value
measurements use significant unobservable inputs and, accordingly, are classified within Level 3.
Exchange-traded derivatives that are valued using quoted prices are classified within Level 1 of the valuation
hierarchy. The majority of the Company’s derivative positions are valued using internally developed models that use
readily observable market parameters as their basis. These are parameters that are actively quoted and can be
validated by external sources, including industry pricing services. Where the types of derivative products have been
in existence for some time, the Company uses models that are widely accepted in the financial services industry.
These models reflect the contractual terms of the derivatives, including the period to maturity, and market-based
parameters such as interest rates, volatility, and the credit quality of the counterparty. Furthermore, many of these
models do not contain a high level of subjectivity, as the methodologies used in the models do not require significant
judgment, and inputs to the models are readily observable from actively quoted markets, as is the case for “plain
vanilla” interest rate swaps and option contracts. Such instruments are generally classified within Level 2 of the
valuation hierarchy. Derivatives that are valued based on models with significant unobservable market parameters,
and that are normally traded less actively, have trade activity that is one-way, and/or are traded in less-developed
markets, are classified within Level 3 of the valuation hierarchy.
The fair value of IRLCs for residential mortgage loans that the Company intends to sell is based on internally
developed models. The key model inputs primarily include the sum of the value of the forward commitment based
on the loans’ expected settlement dates and the projected values of the MSRs, loan level price adjustment factors,
and historical IRLC closing ratios. The closing ratio is computed by the Company’s mortgage banking operation and
is periodically reviewed by management for reasonableness. Such derivatives are classified as Level 3.
While the Company believes its valuation methods are appropriate and consistent with those of other market
participants, the use of different methodologies or assumptions to determine the fair values of certain financial
instruments could result in different estimates of fair values at the reporting date.
147
Change in
Unrealized Gains/
(Losses) Related to
Instruments Held at
December 31, 2012
$ 3,415
(20,938)
21,446
Change in
Unrealized Gains/
(Losses) Related to
Instruments Held at
December 31, 2011
Changes in Level 3 Fair Value Measurements
The following tables present a roll-forward of the balance sheet amounts for the years ended December 31, 2012 and 2011 (including the change in fair
value) for financial instruments classified in Level 3 of the valuation hierarchy.
(in thousands)
Available-for-sale capital securities
Mortgage servicing rights
Interest rate lock commitments
Fair Value
January 1,
2012
$ 18,078
116,416
15,633
Total Realized/Unrealized
Gains/(Losses) Recorded in
Comprehensive
(Loss) Income
$3,545
--
--
Income
$ --
(88,303)
5,813
Issuances
$ --
116,407
--
Settlements
$ --
--
--
Transfers
to/(from)
Level 3
$(3,054)
--
--
Fair Value
at Dec. 31,
2012
$ 18,569
144,520
21,446
(in thousands)
Available-for-sale capital securities
and preferred stock
Mortgage servicing rights
Interest rate lock commitments
Fair Value
January 1,
2011
Total Realized/Unrealized
Gains/(Losses) Recorded in
Comprehensive
(Loss) Income
Income
Issuances
Settlements
Transfers
to/(from)
Level 3
Fair Value
at Dec. 31,
2011
$ 34,808
106,186
53
$ (6,160)
(71,830)
15,580
$(8,479)
--
--
$ --
82,060
--
$--
--
--
$(2,091)
--
--
$ 18,078
116,416
15,633
$(14,639)
(71,830)
15,580
The Company’s policy is to recognize transfers in and out of Levels 1, 2, and 3 as of the end of the reporting period. During the years ended December 31,
2012 and 2011, the Company transferred certain trust preferred securities from Level 3 to Level 2 as a result of increased observable market activity for these
securities. In addition, during the twelve months ended December 31, 2011, $18.1 million of OTTI was recognized on certain preferred stock that had been
classified as Level 3. There were no gains or losses recognized as a result of the transfer of securities during the years ended December 31, 2012 and 2011. There
were no transfers of securities between Levels 1 and 2 for the years ended December 31, 2012 or 2011.
148
For Level 3 assets and liabilities measured at fair value on a recurring basis as of December 31, 2012, the
significant unobservable inputs used in the fair value measurements were as follows:
(dollars in thousands)
Fair Value at
Dec. 31, 2012 Valuation Technique
Capital trust notes
$ 18,569
Discounted Cash Flow
Mortgage Servicing
Rights
144,520
Discounted Cash Flow
Significant Unobservable Inputs
Weighted Average Discount
Rate (1)
Weighted Average Constant
Prepayment Rate (2)
Weighted Average Discount
Rate
Weighted Average Closing
Significant
Unobservable
Input Value
5.09%
15.40
10.50
76.51
Interest Rate Lock
Commitments
21,446
Pricing Model
Ratio
(1) Derived from multiple interest rate scenarios that incorporate a spread to the London Interbank Offered Rate swap curve
and market volatility.
(2) Represents annualized loan repayment rate assumptions.
The significant unobservable input used in the fair value measurement of the Company’s capital trust notes is
the weighted average discount rate. The fair value of the capital trust notes will move in the opposite direction of the
discount rate (i.e., if the discount rate decreases, the value of the capital trust notes will increase). The Company
estimates the expected cash flows for such securities, and discounts them using the weighted average discount rates
above to arrive at the estimated fair value.
The significant unobservable inputs used in the fair value measurement of the Company’s MSRs are the
weighted average constant prepayment rate and the weighted average discount rate. Significant increases (decreases)
in any of those inputs in isolation could result in significantly lower or higher fair value measurements. Although the
constant prepayment rate and the discount rate are not directly interrelated, they will generally move in opposite
directions.
The significant unobservable input used in the fair value measurement of the Company’s IRLCs is the closing
ratio, which represents the percentage of loans currently in a lock position that management estimates will ultimately
close. Generally, the fair value of an IRLC is positive if the prevailing interest rate is lower than the IRLC rate, and
the fair value of an IRLC is negative if the prevailing interest rate is higher than the IRLC rate. Therefore, an
increase in the closing ratio (i.e., higher percentage of loans estimated to close) will result in the fair value of the
IRLC increasing if in a gain position, or decreasing if in a loss position. The closing ratio is largely dependent on the
stage of processing that a loan is currently in, and the change in prevailing interest rates from the time of the rate
lock.
Assets Measured at Fair Value on a Non-Recurring Basis
Certain assets are measured at fair value on a non-recurring basis. Such instruments are subject to fair value
adjustments under certain circumstances (e.g., when there is evidence of impairment). The following tables present
assets and liabilities that were measured at fair value on a non-recurring basis as of December 31, 2012 and 2011,
and that were included in the Company’s Consolidated Statements of Condition at those dates:
(in thousands)
Certain impaired loans
Other assets (1)
Total
Fair Value Measurements at December 31, 2012 Using
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
$--
--
$--
Significant Other
Observable Inputs
(Level 2)
$ --
22,664
$22,664
Significant
Unobservable Inputs
(Level 3)
$76,704
--
$76,704
Total Fair
Value
$76,704
22,664
$99,368
(1) Represents the fair value of OREO, based on the appraised value of collateral subsequent to its initial classification as
OREO.
149
(in thousands)
Certain impaired loans
Other assets (1)
Total
Fair Value Measurements at December 31, 2011 Using
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
$--
--
$--
Significant Other
Observable
Inputs
(Level 2)
--
26,810
$26,810
$
Significant
Unobservable Inputs
(Level 3)
$72,582
--
$72,582
Total Fair
Value
$72,582
26,810
$99,392
(1) Represents the fair value of OREO, based on the appraised value of the collateral subsequent to its initial classification as
OREO.
The fair values of collateral-dependent impaired loans are determined using various valuation techniques,
including consideration of appraised values and other pertinent real estate market data.
Other Fair Value Disclosures
Certain FASB guidance requires the disclosure of fair value information about the Company’s on- and off-
balance sheet financial instruments. When available, quoted market prices are used as the measure of fair value. In
cases where quoted market prices are not available, fair values are based on present-value estimates or other
valuation techniques. Such fair values are significantly affected by the assumptions used, the timing of future cash
flows, and the discount rate.
Because assumptions are inherently subjective in nature, estimated fair values cannot be substantiated by
comparison to independent market quotes. Furthermore, in many cases, the estimated fair values provided would not
necessarily be realized in an immediate sale or settlement of such instruments.
The following tables summarize the carrying values, estimated fair values, and the fair value measurement
levels of financial instruments that were not carried at fair value on the Company’s Consolidated Statements of
Condition at December 31, 2012 and 2011:
December 31, 2012
(in thousands)
Financial Assets:
Carrying
Value
Estimated
Fair Value
Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)
Fair Value Measurement Using
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Cash and cash equivalents
Securities held to maturity
FHLB stock(1)
Loans, net
Mortgage servicing rights
$ 2,427,258 $ 2,427,258
4,705,960
469,145
31,977,472
193
4,484,262
469,145
31,580,636
193
$ 2,427,258
--
--
--
--
$ --
4,648,766
469,145
--
--
$ --
57,194
--
31,977,472
193
Financial Liabilities:
Deposits
Borrowed funds
$24,877,521 $24,909,496
14,935,580
13,430,191
$15,756,607(2)
--
$ 9,152,889 (3) $ --
--
14,935,580
(1) Carrying value and estimated fair value are at cost.
(2) Includes NOW and money market accounts, savings accounts, and non-interest-bearing accounts.
(3) Represents certificates of deposit.
150
(in thousands)
Financial Assets:
Carrying
Value
Estimated
Fair Value
December 31, 2011
Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)
Fair Value Measurement Using
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Cash and cash equivalents
Securities held to maturity
FHLB stock(1)
Loans, net
Mortgage servicing rights
$ 2,001,737 $ 2,001,737
3,966,185
490,228
30,755,121
596
3,815,854
490,228
30,152,154
596
$ 2,001,737
--
--
--
--
$
--
3,890,970
490,228
--
--
$
--
75,215
--
30,755,121
596
Financial Liabilities:
Deposits
Borrowed funds
$22,325,654 $22,372,535
15,423,474
13,960,413
$ 14,952,391(2)
--
$ 7,420,144(3) $
15,423,474
--
--
(1) Carrying value and estimated fair value are at cost.
(2) Includes NOW and money market accounts, savings accounts, and non-interest-bearing accounts.
(3) Represents certificates of deposit.
The methods and significant assumptions used to estimate fair values for the Company’s financial instruments
follow:
Cash and Cash Equivalents
Cash and cash equivalents include cash and due from banks and fed funds sold. The estimated fair values of
cash and cash equivalents are assumed to equal their carrying values, as these financial instruments are either due on
demand or have short-term maturities.
Securities
If quoted market prices are not available for a specific security, then fair values are estimated by using pricing
models, quoted prices of securities with similar characteristics, or discounted cash flows. These pricing models
primarily use market-based or independently sourced market parameters as inputs, including, but not limited to,
yield curves, interest rates, equity or debt prices, and credit spreads. In addition to observable market information,
pricing models also incorporate transaction details such as maturity and cash flow assumptions.
Federal Home Loan Bank Stock
Ownership in equity securities of the FHLB is restricted and there is no established market for their resale.
Loans
The loan portfolio is segregated into various components for valuation purposes in order to group loans based
on their significant financial characteristics, such as loan type (mortgages or other) and payment status (performing
or non-performing). The estimated fair values of mortgage and other loans are computed by discounting the
anticipated cash flows from the respective portfolios. The discount rates reflect current market rates for loans with
similar terms to borrowers of similar credit quality. The estimated fair values of non-performing mortgage and other
loans are based on recent collateral appraisals.
The methods used to estimate the fair value of loans are extremely sensitive to the assumptions and estimates
used. While management has attempted to use assumptions and estimates that best reflect the Company’s loan
portfolio and current market conditions, a greater degree of subjectivity is inherent in these values than in those
determined in active markets. Accordingly, readers are cautioned in using this information for purposes of
evaluating the financial condition and/or value of the Company in and of itself or in comparison with any other
company.
In addition, these methods of estimating fair value do not incorporate the exit-price concept of fair value
described in ASC 820-10, “Fair Value Measurements and Disclosures.”
151
Loans Held for Sale
Fair value is based on independent quoted market prices, where available, and adjusted as necessary for such
items as servicing value, guaranty fee premiums, and credit spread adjustments.
Mortgage Servicing Rights
MSRs do not trade in an active market with readily observable prices. Accordingly, the Company utilizes a
valuation model that calculates the present value of estimated future cash flows. The model incorporates various
assumptions, including estimates of prepayment speeds, discount rates, refinance rates, servicing costs, and ancillary
income. The Company reassesses and periodically adjusts the underlying inputs and assumptions in the model to
reflect current market conditions and assumptions that a market participant would consider in valuing the MSR
asset.
Derivative Financial Instruments
For exchange-traded futures and exchange-traded options, the fair value is based on observable quoted market
prices in an active market. For forward commitments to buy and sell loans and mortgage-backed securities, the fair
value is based on observable market prices for similar securities in an active market. The fair value of IRLCs for
one-to-four family mortgage loans that the Company intends to sell is based on internally developed models. The
key model inputs primarily include the sum of the value of the forward commitment based on the loans’ expected
settlement dates, the value of MSRs arrived at by an independent MSR broker, government agency price adjustment
factors, and historical IRLC fall-out factors.
Deposits
The fair values of deposit liabilities with no stated maturity (i.e., NOW and money market accounts, savings
accounts, and non-interest-bearing accounts) are equal to the carrying amounts payable on demand. The fair values
of CDs represent contractual cash flows, discounted using interest rates currently offered on deposits with similar
characteristics and remaining maturities. These estimated fair values do not include the intangible value of core
deposit relationships, which comprise a significant portion of the Company’s deposit base.
Borrowed Funds
The estimated fair value of borrowed funds is based either on bid quotations received from securities dealers
or the discounted value of contractual cash flows with interest rates currently in effect for borrowed funds with
similar maturities and structures.
Off-Balance Sheet Financial Instruments
The fair values of commitments to extend credit and unadvanced lines of credit are estimated based on an
analysis of the interest rates and fees currently charged to enter into similar transactions, considering the remaining
terms of the commitments and the creditworthiness of the potential borrowers. The estimated fair values of such off-
balance sheet financial instruments were insignificant at December 31, 2012 and 2011.
NOTE 14: DERIVATIVE FINANCIAL INSTRUMENTS
The Company’s derivative financial instruments consist of financial forward and futures contracts, IRLCs, and
options. These derivatives relate to mortgage banking operations, MSRs, and other risk management activities, and
seek to mitigate or reduce the Company’s exposure to losses from adverse changes in interest rates. These activities
will vary in scope based on the level and volatility of interest rates, the type of assets held, and other changing
market conditions.
In accordance with the applicable accounting guidance, the Company takes into account the impact of
collateral and master netting agreements that allow it to settle all derivative contracts held with a single counterparty
on a net basis, and to offset the net derivative position with the related collateral when recognizing derivative assets
and liabilities. As a result, the Company’s Statements of Financial Condition could reflect derivative contracts with
negative fair values included in derivative assets, and contracts with positive fair values included in derivative
liabilities.
The Company held derivatives with a notional amount of $5.8 billion at December 31, 2012. Changes in the
fair value of these derivatives are reflected in current-period earnings. None of these derivatives are designated as
hedges for accounting purposes.
152
The following table sets forth information regarding the Company’s derivative financial instruments at
December 31, 2012:
December 31, 2012
(in thousands)
Treasury options
Eurodollar futures
Forward commitments to sell loans/mortgage-backed securities
Forward commitments to buy loans/mortgage-backed securities
Interest rate lock commitments
Total derivatives
Notional
Amount
$ 685,000
150,000
2,484,500
870,000
1,568,027
$ 5,757,527
$
Unrealized (1)
Loss
Gain
575 $2,230
73
5,712
96
--
$24,937 $8,111
6
1,805
1,105
21,446
(1) Derivatives in a net gain position are recorded as “other assets” and derivatives in a net loss position are recorded as
“other liabilities” in the Consolidated Statements of Condition.
The Company uses various financial instruments, including derivatives, in connection with its strategies to
reduce pricing risk resulting from changes in interest rates. Derivative instruments may include IRLCs entered into
with borrowers or correspondents/brokers to acquire agency-conforming fixed and adjustable rate residential
mortgage loans that will be held for sale. Other derivative instruments include Treasury options and Eurodollar
futures. Gains or losses due to changes in the fair value of derivatives are recognized in current-period earnings.
The Company enters into forward contracts to sell fixed rate mortgage-backed securities to protect against
changes in the prices of agency-conforming fixed rate loans held for sale. Forward contracts are entered into with
securities dealers in an amount related to the portion of IRLCs that is expected to close. The value of these forward
sales contracts moves inversely with the value of the loans in response to changes in interest rates.
To manage the price risk associated with fixed rate non-conforming mortgage loans, the Company generally
enters into forward contracts on mortgage-backed securities or forward commitments to sell loans to approved
investors. Short positions in Eurodollar futures contracts are used to manage price risk on adjustable rate mortgage
loans held for sale.
The Company also purchases put and call options to manage the risk associated with variations in the amount
of IRLCs that ultimately close.
In addition, the Company mitigates a portion of the risk associated with changes in the value of MSRs. The
general strategy for mitigating this risk is to purchase derivative instruments, the value of which changes in the
opposite direction of interest rates, thus partially offsetting changes in the value of our servicing assets, the value of
which tends to move in the same direction as interest rates. Accordingly, the Company purchases Eurodollar futures
and call options on Treasury securities and enters into forward contracts to purchase mortgage-backed securities.
The following table sets forth the effect of derivative instruments on the Consolidated Statements of Income
and Comprehensive Income for the twelve months ended December 31, 2012 and 2011:
(in thousands)
Treasury options
Eurodollar futures
Forward commitments to buy/sell
loans/mortgage-backed securities
Total gain (loss)
Gain (Loss) Included in Mortgage Banking Income
For the Twelve Months Ended December 31,
2012
$ (120)
(1,468)
3,026
$ 1,438
2011
$ 19,063
(2,456)
(37,434)
$ (20,827)
153
NOTE 15: DIVIDEND RESTRICTIONS ON SUBSIDIARY BANKS
Various legal restrictions limit the extent to which the Company’s subsidiary banks can supply funds to the
Parent Company and its non-bank subsidiaries. The Company’s subsidiary banks would require the approval of the
Superintendent of the New York State Department of Financial Services (the “NYDFS”) if the dividends they
declared in any calendar year were to exceed the total of their respective net profits for that year combined with their
respective retained net profits for the preceding two calendar years, less any required transfer to paid-in capital. The
term “net profits” is defined as the remainder of all earnings from current operations plus actual recoveries on loans,
investments, and other assets, after deducting from the total thereof all current operating expenses, actual losses, if
any, and all federal, state, and local taxes. In 2012, dividends of $485.0 million were paid by the Banks to the Parent
Company. At December 31, 2012, the Banks could have paid additional dividends of $301.8 million to the Parent
Company without regulatory approval.
NOTE 16: PARENT COMPANY-ONLY FINANCIAL INFORMATION
The following tables present the condensed financial statements for New York Community Bancorp, Inc.
(parent company only):
Condensed Statements of Condition
(in thousands)
ASSETS:
Cash and cash equivalents
Securities available for sale
Investments in subsidiaries
Receivables from subsidiaries
Other assets
Total assets
LIABILITIES AND STOCKHOLDERS’ EQUITY:
Senior notes
Junior subordinated debentures
Other liabilities
Total liabilities
Stockholders’ equity
Total liabilities and stockholders’ equity
Condensed Statements of Income
(in thousands)
Interest income
Dividends received from subsidiaries
Loss on debt redemption
Other income
Gross income
Operating expenses
Income before income tax benefit and equity in undistributed
(overdistributed) earnings of subsidiaries
Income tax benefit
Income before equity in undistributed (overdistributed) earnings
of subsidiaries
Equity in undistributed (overdistributed) earnings of subsidiaries
Net income
154
December 31,
2012
2011
$ 113,745
2,662
5,890,134
6,580
28,617
$6,041,738
$ 241,268
3,815
5,839,263
6,171
28,463
$6,118,980
$ --
357,917
27,557
385,474
5,656,264
$6,041,738
$ 89,984
426,936
36,356
553,276
5,565,704
$6,118,980
2012
2010
Years Ended December 31,
2011
$ 1,121 $ 1,064 $ 969
335,000
--
767
336,736
39,394
555,000
--
753
556,817
42,185
485,000
(2,313)
1,174
484,982
44,651
440,331
20,029
514,632
16,445
297,342
17,127
460,360
40,746
314,469
226,548
$501,106 $480,037 $541,017
531,077
(51,040)
Condensed Statements of Cash Flows
(in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income
Change in other assets
Change in other liabilities
Other, net
Equity in (undistributed) overdistributed earnings of subsidiaries
Net cash provided by operating activities
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales and repayments of securities
Change in receivable from subsidiaries, net
Net cash provided by (used in) investing activities
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock, net
Treasury stock purchases
Cash dividends paid on common stock
Net cash received from exercise of stock options
Payments for debt redemptions
Net cash used in financing activities
Net (decrease) increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
NOTE 17: REGULATORY MATTERS
Years Ended December 31,
2011
2010
2012
$ 501,106
(154)
(8,799)
21,474
(40,746)
472,881
$ 480,037
23,990
15,352
21,530
51,040
591,949
$ 541,017
3,004
(3,420)
8,038
(226,548)
322,091
1,276
(409)
867
2,459
1,870
4,329
634
(4,423)
(3,789)
--
(3,522)
(438,539)
--
(159,210)
(601,271)
(127,523)
$ 241,268
$ 113,745
--
(3,696)
(436,914)
3,519
--
(437,091)
159,187
82,081
$ 241,268
28,935
(4,054)
(434,366)
5,436
--
(404,049)
(85,747)
167,828
$ 82,081
The Company is subject to examination, regulation, and periodic reporting under the Bank Holding Company
Act of 1956, as amended, which is administered by the Federal Reserve Board of Governors (the “FRB”). The FRB
has adopted capital adequacy guidelines for bank holding companies (on a consolidated basis) that are substantially
similar to those of the FDIC.
The following tables present the regulatory capital ratios for the Company at December 31, 2012 and 2011, in
comparison with the minimum amounts and ratios required by the FRB for capital adequacy purposes:
At December 31, 2012
(dollars in thousands)
Total regulatory capital
Minimum for capital adequacy purposes
Excess
Leverage Capital
Amount
$3,605,671
1,631,267
$1,974,404
Ratio
8.84%
4.00
4.84%
Tier 1
Amount Ratio
$3,605,671 13.38 %
1,077,615
$2,528,056
4.00
9.38 %
Total
Amount Ratio
$3,800,221 14.11%
2,155,230
$1,644,991
8.00
6.11%
Risk-Based Capital
At December 31, 2011
(dollars in thousands)
Total regulatory capital
Minimum for capital adequacy purposes
Excess
Leverage Capital
Amount
$3,580,302
1,575,464
$2,004,838
Ratio
9.09%
4.00
5.09%
Tier 1
Amount Ratio
$3,580,302 13.59%
Total
Amount Ratio
$3,750,915 14.23%
1,054,144
$2,526,158
4.00
9.59%
2,108,287
$1,642,628
8.00
6.23%
Risk-Based Capital
The Banks are subject to regulation, examination, and supervision by the NYDFS and the FDIC (the
“Regulators”). The Banks are also governed by numerous federal and state laws and regulations, including the FDIC
Improvement Act of 1991, which established five categories of capital adequacy ranging from well capitalized to
critically undercapitalized. Such classifications are used by the FDIC to determine various matters, including prompt
corrective action and each institution’s FDIC deposit insurance premium assessments. Capital amounts and
classifications are also subject to the Regulators’ qualitative judgments about the components of capital and risk
weightings, among other factors.
The quantitative measures established to ensure capital adequacy require that banks maintain minimum
amounts and ratios of leverage capital to average assets, and of Tier 1 and total risk-based capital to risk-weighted
155
assets (as such measures are defined in the regulations). At December 31, 2012, the Banks exceeded all the capital
adequacy requirements to which they were subject.
As of December 31, 2012, the most recent notifications from the FDIC categorized the Community Bank and
the Commercial Bank as “well capitalized” under the regulatory framework for prompt corrective action. To be
categorized as well capitalized, a bank must maintain a minimum leverage capital ratio of 5.00%; a minimum Tier 1
risk-based capital ratio of 6.00%; and a minimum total risk-based capital ratio of 10.00%. In the opinion of
management, no conditions or events have transpired since said notification to change these capital adequacy
classifications.
The following tables present the actual capital amounts and ratios for the Community Bank at December 31,
2012 and 2011 in comparison to the minimum amounts and ratios required for capital adequacy purposes:
At December 31, 2012
(dollars in thousands)
Total regulatory capital
Minimum for capital adequacy purposes
Excess
Leverage Capital
Amount
$3,156,127
1,514,709
$1,641,418
Ratio
8.33%
4.00
4.33%
Tier 1
Amount Ratio
$3,156,127 12.50%
Total
Amount Ratio
$3,338,196 13.22%
1,010,199
$2,145,928
4.00
8.50%
2,020,397
$1,317,799
8.00
5.22%
Risk-Based Capital
At December 31, 2011
(dollars in thousands)
Total regulatory capital
Minimum for capital adequacy purposes
Excess
Leverage Capital
Amount
$3,125,359
1,478,304
$1,647,055
Ratio
8.46%
4.00
4.46%
Tier 1
Amount Ratio
$3,125,359 12.78%
Total
Amount Ratio
$3,283,502 13.42%
978,548
$2,146,811
4.00
8.78%
1,957,097
$1,326,405
8.00
5.42%
Risk-Based Capital
The following tables present the actual capital amounts and ratios for the Commercial Bank at December 31,
2012 and 2011 in comparison to the minimum amounts and ratios required for capital adequacy purposes:
At December 31, 2012
(dollars in thousands)
Total regulatory capital
Minimum for capital adequacy purposes
Excess
Leverage Capital
Amount
Ratio
$345,111 11.59%
119,132
$225,979
4.00
7.59%
Tier 1
Amount Ratio
16.64%
$345,111
4.00
82,966
12.64%
$262,145
Total
Amount Ratio
$357,504 17.24%
165,932
$191,572
8.00
9.24%
Risk-Based Capital
At December 31, 2011
(dollars in thousands)
Total regulatory capital
Minimum for capital adequacy purposes
Excess
Leverage Capital
Amount
Ratio
$322,611 13.01%
99,219
$223,392
4.00
9.01%
Tier 1
Amount Ratio
$322,611 17.01%
75,862
4.00
$246,749 13.01%
Total
Amount Ratio
$335,509 17.69%
151,724
$183,785
8.00
9.69%
Risk-Based Capital
156
NOTE 18: SEGMENT REPORTING
The Company’s operations are divided into two reportable business segments: Banking Operations and
Residential Mortgage Banking. These operating segments have been identified based on the Company’s
organizational structure. The segments require unique technology and marketing strategies and offer different
products and services. While the Company is managed as an integrated organization, individual executive managers
are held accountable for the operations of these business segments.
The Company measures and presents information for internal reporting purposes in a variety of ways. The
internal reporting system presently used by management in the planning and measurement of operating activities,
and to which most managers are held accountable, is based on organizational structure.
The management accounting process uses various estimates and allocation methodologies to measure the
performance of the operating segments. To determine financial performance for each segment, the Company
allocates capital, funding charges and credits, certain non-interest expenses, and income tax provisions to each
segment, as applicable. Allocation methodologies are subject to periodic adjustment as the internal management
accounting system is revised and/or as business or product lines within the segments change. In addition, because
the development and application of these methodologies is a dynamic process, the financial results presented may be
periodically revised.
The Company’s overall objective is to maximize shareholder value by, among other things, optimizing return
on equity and managing risk. Capital is assigned to each segment, the total of which is equivalent to the Company’s
consolidated total, on an economic basis, using management’s assessment of the inherent risks associated with the
segment. Capital allocations are made to cover the following risk categories: credit risk, liquidity risk, interest rate
risk, option risk, basis risk, market risk, and operational risk.
The Company allocates expenses to the reportable segments based on various factors, including the volume
and amount of loans produced and the number of full-time equivalent employees. Income taxes are allocated to the
various segments based on taxable income and statutory rates applicable to the segment.
Banking Operations Segment
The Banking Operations Segment serves individual and business customers by offering and servicing a variety
of loan and deposit products and other financial services.
Residential Mortgage Banking Segment
The Residential Mortgage Banking segment originates, sells, aggregates, and services one-to-four family
mortgage loans. Mortgage loan products include conventional and jumbo fixed- and adjustable-rate loans for the
purpose of purchasing or refinancing one-to-four family residential properties. The Residential Mortgage Banking
segment earns interest on loans held in the warehouse and non-interest income from the origination and servicing of
loans. It also recognizes gains or losses from the sale of such loans.
157
The following tables provide a summary of the Company’s segment results for the years ended December 31,
2012 and 2011, on an internally managed accounting basis:
$
For the Twelve Months Ended December 31, 2012
Residential
Mortgage Banking
$ 181,290
14,795
196,085
31,430
227,515
--
79,566
147,949
57,478
$
90,471
$1,464,810
Banking
Operations
116,063
$
(14,795)
101,268
1,128,591
1,229,859
62,988
533,911
632,960
222,325
$
410,635
$42,680,290
Total
Company
297,353
--
297,353
1,160,021
1,457,374
62,988
613,477
780,909
279,803
$
501,106
$44,145,100
For the Twelve Months Ended December 31, 2011
Residential
Mortgage Banking
Banking
Operations
153,307
$
(16,699)
136,608
1,176,137
1,312,745
100,420
531,264
681,061
233,963
$
447,098
$40,796,101
$
82,018
16,699
98,717
24,284
123,001
--
69,485
53,516
20,577
$
32,939
$1,228,201
$
Total
Company
235,325
--
235,325
1,200,421
1,435,746
100,420
600,749
734,577
254,540
$
480,037
$42,024,302
(in thousands)
Non-interest income – third party (1)
Non-interest income – inter-segment
Total non-interest income
Net interest income
Total net revenues
Provision for loan losses
Non-interest expense (2)
Income before income tax expense
Income tax expense
Net income
Identifiable segment assets (period-end)
(1) Includes ancillary fee income.
(2) Includes both direct and indirect expenses.
(in thousands)
Non-interest income – third party (1)
Non-interest income – inter-segment
Total non-interest income
Net interest income
Total net revenues
Provision for loan losses
Non-interest expense (2)
Income before income tax expense
Income tax expense
Net income
Identifiable segment assets (period-end)
(1) Includes ancillary fee income.
(2) Includes both direct and indirect expenses.
NOTE 19: SUBSEQUENT EVENTS
The Company evaluated whether any subsequent events that require recognition or disclosure in the
accompanying financial statements and notes thereto took place through the date these financial statements were
issued (March 1, 2013) and determined that no such subsequent events occurred during this time.
158
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders
New York Community Bancorp, Inc.:
We have audited the accompanying consolidated statements of condition of New York Community Bancorp, Inc.
and subsidiaries (the “Company”) as of December 31, 2012 and 2011, and the related consolidated statements of
income and comprehensive income, changes in stockholders’ equity, and cash flows for each of the years in the
three-year period ended December 31, 2012. These consolidated financial statements are the responsibility of the
Company’s management. Our responsibility is to express an opinion on these consolidated financial statements
based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the
financial position of New York Community Bancorp, Inc. and subsidiaries as of December 31, 2012 and 2011, and
the results of their operations and their cash flows for each of the years in the three-year period ended December 31,
2012, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States), Company’s internal control over financial reporting as of December 31, 2012, based on criteria established
in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO), and our report dated March 1, 2013 expressed an unqualified opinion on the effectiveness of
the Company’s internal control over financial reporting.
New York, New York
March 1, 2013
159
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders
New York Community Bancorp, Inc.:
We have audited New York Community Bancorp, Inc. and subsidiaries’ (the “Company’s”) internal control over
financial reporting as of December 31, 2012, based on criteria established in Internal Control – Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The
Company’s management is responsible for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting, included in the accompanying
Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on
the Company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether effective internal control over financial reporting was maintained in all material respects. Our audit
included obtaining an understanding of internal control over financial reporting, assessing the risk that a material
weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the
assessed risk. Our audit also included performing such other procedures as we considered necessary in the
circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. A company’s internal control over financial reporting
includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company are being made
only in accordance with authorizations of management and directors of the company; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may
deteriorate.
In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting
as of December 31, 2012, based on criteria established in Internal Control – Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States), the consolidated statements of condition of the Company as of December 31, 2012 and 2011, and the related
consolidated statements of income and comprehensive income, changes in stockholders’ equity, and cash flows for
each of the years in the three-year period ended December 31, 2012, and our report dated March 1, 2013 expressed
an unqualified opinion on those consolidated financial statements.
New York, New York
March 1, 2013
160
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
(a) Evaluation of Disclosure Controls and Procedures
Under the supervision, and with the participation, of our Chief Executive Officer and Chief Financial Officer,
our management evaluated the effectiveness of the design and operation of the Company’s disclosure controls and
procedures pursuant to Rule 13a-15(b), as adopted by the Securities and Exchange Commission (the “SEC”) under
the Securities Exchange Act of 1934 (the “Exchange Act”). Based upon that evaluation, the Chief Executive Officer
and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of
the end of the period covered by this annual report.
Disclosure controls and procedures are the controls and other procedures that are designed to ensure that
information required to be disclosed in the reports that the Company files or submits under the Exchange Act is
recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms.
Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that
information required to be disclosed in the reports that the Company files or submits under the Exchange Act is
accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer,
as appropriate, to allow timely decisions regarding required disclosure.
(b) Management’s Report on Internal Control over Financial Reporting
Management of the Company is responsible for establishing and maintaining adequate internal control over
financial reporting. Our system of internal control is designed under the supervision of management, including our
Chief Executive Officer and Chief Financial Officer, to provide reasonable assurance regarding the reliability of our
financial reporting and the preparation of the Company’s financial statements for external reporting purposes in
accordance with U.S. generally accepted accounting principles (“GAAP”).
Our internal control over financial reporting includes policies and procedures that pertain to the maintenance
of records that, in reasonable detail, accurately and fairly reflect transactions and dispositions of assets; provide
reasonable assurances that transactions are recorded as necessary to permit preparation of financial statements in
accordance with GAAP, and that receipts and expenditures are made only in accordance with the authorization of
management and the Boards of Directors of the Company and the Banks; and provide reasonable assurance
regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets
that could have a material effect on our financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that the controls
may become inadequate because of changes in conditions or that the degree of compliance with policies and
procedures may deteriorate.
As of December 31, 2012, management assessed the effectiveness of the Company’s internal control over
financial reporting based upon the framework established in Internal Control—Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based upon its assessment,
management concluded that the Company’s internal control over financial reporting as of December 31, 2012 was
effective using these criteria.
The effectiveness of the Company’s internal control over financial reporting as of December 31, 2012 has
been audited by KPMG LLP, an independent registered public accounting firm that audited the Company’s
consolidated financial statements as of and for the year ended December 31, 2012, as stated in their report, included
in Item 8 on the preceding page, which expresses an unqualified opinion on the effectiveness of the Company’s
internal control over financial reporting as of December 31, 2012.
(c) Changes in Internal Control over Financial Reporting
There have not been any changes in the Company’s internal control over financial reporting (as such term is
defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter to which this report
relates that have materially affected, or are reasonably likely to materially affect, the Company’s internal control
over financial reporting.
161
ITEM 9B. OTHER INFORMATION
None.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE
Information regarding our directors, executive officers, and corporate governance appears in our Proxy
Statement for the Annual Meeting of Shareholders to be held on June 6, 2013 (hereafter referred to as our “2013
Proxy Statement”) under the captions “Information with Respect to Nominees, Continuing Directors, and Executive
Officers,” “Section 16(a) Beneficial Ownership Reporting Compliance,” “Meetings and Committees of the Board of
Directors,” and “Corporate Governance,” and is incorporated herein by this reference.
A copy of our Code of Business Conduct and Ethics, which applies to our Chief Executive Officer, Chief
Operating Officer, Chief Financial Officer, and Chief Accounting Officer as officers of the Company, and all other
senior financial officers of the Company designated by the Chief Executive Officer from time to time, is available at
our websites, www.myNYCB.com, www.NewYorkCommercialBank.com, and www.NYCBfamily.com, and will be
provided, without charge, upon written request to the Corporate Secretary at 615 Merrick Avenue, Westbury, NY
11590.
ITEM 11. EXECUTIVE COMPENSATION
Information regarding executive compensation appears in our 2013 Proxy Statement under the captions
“Compensation Committee Report,” “Compensation Committee Interlocks and Insider Participation,”
“Compensation Discussion and Analysis,” “Executive Compensation and Related Information,” and “Director
Compensation,” and is incorporated herein by this reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AND RELATED STOCKHOLDER MATTERS
The following table provides information regarding the Company’s equity compensation plans at
December 31, 2012:
Number of securities to be
issued upon exercise of
outstanding options,
warrants, and rights
Weighted-average exercise
price of outstanding
options, warrants, and
rights
Number of securities
remaining available for
future issuance under
equity compensation plans
(excluding securities
reflected in column (a))
(a)
(b)
(c)
2,641,344
--
2,641,344
$16.68
--
$16.68
18,999,513
--
18,999,513
Plan category
Equity compensation plans
approved by security holders
Equity compensation plans not
approved by security holders
Total
Information relating to the security ownership of certain beneficial owners and management appears in our
2013 Proxy Statement under the captions “Security Ownership of Certain Beneficial Owners” and “Information with
Respect to Nominees, Continuing Directors, and Executive Officers.”
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
Information regarding certain relationships and related transactions appears in our 2013 Proxy Statement
under the captions “Transactions with Certain Related Persons” and “Corporate Governance,” and is incorporated
herein by this reference.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Information regarding principal accountant fees and services appears in our 2013 Proxy Statement under the
caption “Audit and Non-Audit Fees,” and is incorporated herein by this reference.
162
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Documents Filed As Part of This Report
1. Financial Statements
The following are incorporated by reference from Item 8 hereof:
Reports of Independent Registered Public Accounting Firm;
Consolidated Statements of Condition at December 31, 2012 and 2011;
Consolidated Statements of Income and Comprehensive Income for each of the years in the three-year
period ended December 31, 2012;
Consolidated Statements of Changes in Stockholders’ Equity for each of the years in the three-year period
ended December 31, 2012;
Consolidated Statements of Cash Flows for each of the years in the three-year period ended December 31,
2012; and
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120) Notes to the Consolidated Financial Statements.
The following are incorporated by reference from Item 9A hereof:
(cid:120) Management’s Report on Internal Control over Financial Reporting; and
(cid:120)
Changes in Internal Control over Financial Reporting.
2. Financial Statement Schedules
Financial statement schedules have been omitted because they are not applicable or because the required
information is provided in the Consolidated Financial Statements or Notes thereto.
3. Exhibits Required by Securities and Exchange Commission Regulation S-K
The following exhibits are filed as part of this Form 10-K and this list includes the Exhibit Index.
Exhibit No.
3.1
Amended and Restated Certificate of Incorporation (1)
3.2
Certificates of Amendment of Amended and Restated Certificate of Incorporation (2)
3.3
Amended and Restated Bylaws (3)
4.1
Specimen Stock Certificate (4)
4.2
10.1
Registrant will furnish, upon request, copies of all instruments defining the rights of holders of long-
term debt instruments of the registrant and its consolidated subsidiaries.
Form of Employment Agreement between New York Community Bancorp, Inc. and Joseph R. Ficalora,
Robert Wann, Thomas R. Cangemi, James J. Carpenter, and John J. Pinto (5)
10.2
Retirement Agreement between New York Community Bancorp, Inc. and Michael F. Manzulli (6)
10.3
Retirement Agreement between New York Community Bancorp, Inc. and James J. O’Donovan (6)
10.4
Synergy Financial Group, Inc. 2003 Stock Option Plan (as assumed by New York Community Bancorp,
Inc. effective October 1, 2007) (7)
163
10.5
Synergy Financial Group, Inc. 2004 Stock Option Plan (as assumed by New York Community Bancorp,
Inc. effective October 1, 2007) (7)
10.6
Form of Change in Control Agreements among the Company, the Bank, and Certain Officers (8)
10.7
Form of Queens County Bancorp, Inc. 1993 Incentive Stock Option Plan (9)
10.8
Form of Queens County Savings Bank Employee Severance Compensation Plan (8)
10.9
Form of Queens County Savings Bank Outside Directors’ Consultation and Retirement Plan (8)
10.10
Form of Queens County Bancorp, Inc. Employee Stock Ownership Plan and Trust (8)
10.11
Incentive Savings Plan of Queens County Savings Bank (10)
10.12
Retirement Plan of Queens County Savings Bank (8)
10.13
Supplemental Benefit Plan of Queens County Savings Bank (11)
10.14
Excess Retirement Benefits Plan of Queens County Savings Bank (8)
10.15 Queens County Savings Bank Directors’ Deferred Fee Stock Unit Plan (8)
10.16 New York Community Bancorp, Inc. 1997 Stock Option Plan (12)
10.17
Richmond County Financial Corp. 1998 Stock-Based Incentive Plan (13)
10.18 Amended and Restated Roslyn Bancorp, Inc. 1997 Stock-Based Incentive Plan (14)
10.19
Roslyn Bancorp, Inc. 2001 Stock-Based Incentive Plan (14)
10.20
Long Island Financial Corp. 1998 Stock Option Plan, as amended (15)
10.21
TR Financial Corp. 1993 Incentive Stock Option Plan, as amended and restated(14)
10.22 Haven Bancorp, Inc. Incentive Stock Option Plan, as amended and restated (16)
10.23 Haven Bancorp, Inc. Stock Option Plan for Outside Directors, as amended and restated (16)
10.24 Amended and Restated Bayonne Bancshares 1995 Stock Option Plan (as assumed by Richmond County
Financial Corp.) (15)
10.25 New York Community Bancorp, Inc. Management Incentive Compensation Plan (17)
10.26 New York Community Bancorp, Inc. 2006 Stock Incentive Plan (17)
10.27 New York Community Bancorp, Inc. 2012 Stock Incentive Plan (18)
11.0
Statement Re: Computation of Per Share Earnings (See Note 2 to the Consolidated Financial
Statements.)
12.0
Statement Re: Ratio of Earnings to Fixed Charges (attached hereto)
21.0
Subsidiaries information incorporated herein by reference to Part I, “Subsidiaries”
23.0
Consent of KPMG LLP, dated March 1, 2013 (attached hereto)
31.1
Rule 13a-14(a) Certification of Chief Executive Officer of the Company in accordance with Section 302
of the Sarbanes-Oxley Act of 2002 (attached hereto)
164
31.2
32.0
101
Rule 13a-14(a) Certification of Chief Financial Officer of the Company in accordance with Section 302
of the Sarbanes-Oxley Act of 2002 (attached hereto)
Section 1350 Certifications of the Chief Executive Officer and Chief Financial Officer of the Company
in accordance with Section 906 of the Sarbanes-Oxley Act of 2002 (attached hereto)
The following materials from the Company’s Annual Report on Form 10-K for the year ended
December 31, 2012, formatted in XBRL (Extensible Business Reporting Language): (i) the
Consolidated Statements of Condition, (ii) the Consolidated Statements of Income and Comprehensive
Income, (iii) the Consolidated Statements of Changes in Stockholders’ Equity, (iv) the Consolidated
Statements of Cash Flows, and (v) the Notes to Consolidated Financial Statements.
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
Incorporated by reference to Exhibits filed with the Company’s Form 10-Q for the quarterly period ended
March 31, 2001 (File No. 0-22278)
Incorporated by reference to Exhibits filed with the Company’s Form 10-K for the year ended December 31,
2003 (File No. 1-31565)
Incorporated by reference to Exhibits to the Company’s Form 8-K filed with the Securities and Exchange
Commission on August 27, 2012
Incorporated by reference to Exhibits filed with the Company’s Registration Statement on Form S-1,
Registration No. 33-66852
Incorporated by reference to Exhibits filed with the Company’s Form 8-K filed with the Securities and
Exchange Commission on March 9, 2006
Incorporated by reference to Exhibits filed with the Company’s Form 10-Q for the quarterly period ended
March 31, 2007 (File No. 001-31565)
Incorporated by reference to Exhibits to Form S-8, Registration Statement filed on October 4, 2007,
Registration No. 333-146512
Incorporated by reference to Exhibits filed with the Company’s Registration Statement on Form S-1,
Registration No. 33-66852
Incorporated by reference to Exhibits to Form S-8, Registration Statement filed on October 27, 1994,
Registration No. 33-85684
(10) Incorporated by reference to Exhibits to Form S-8, Registration Statement filed on October 27, 1994,
Registration No. 33-85682
(11) Incorporated by reference to Exhibits filed with the 1995 Proxy Statement for the Annual Meeting of
Shareholders held on April 19, 1995
(12) Incorporated by reference to Exhibit A filed with the 1997 Proxy Statement for the Annual Meeting of
Shareholders held on April 16, 1997, as amended, as reflected in the Company’s Proxy Statement for the
Annual Meeting of Shareholders held on May 15, 2002
(13) Incorporated by reference to Exhibits to Form S-8, Registration Statement filed on July 31, 2001, Registration
No. 333-66366
(14) Incorporated by reference to Exhibits to Form S-8, Registration Statement filed on November 10, 2003,
Registration No. 333-110361
(15) Incorporated by reference to Exhibits to Form S-8, Registration Statement filed on January 9, 2006,
Registration No. 333-130908
(16) Incorporated by reference to Exhibits to Form S-8, Registration Statement filed on December 15, 2000,
Registration No. 333-51998
(17) Incorporated by reference to Exhibits filed with the 2006 Proxy Statement for the Annual Meeting of
Shareholders held on June 7, 2006
(18) Incorporated by reference to Exhibits filed with the 2012 Proxy Statement for the Annual Meeting of
Shareholders held on June 7, 2012
165
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
March 1, 2013
New York Community Bancorp, Inc.
(Registrant)
/s/ Joseph R. Ficalora
Joseph R. Ficalora
President and Chief Executive Officer
(Principal Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the dates indicated.
/s/ Thomas R. Cangemi
Thomas R. Cangemi
Senior Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
/s/ Maureen E. Clancy
Maureen E. Clancy
Director
/s/ William C. Frederick, M.D.
William C. Frederick, M.D.
Director
/s/ Michael J. Levine
Michael J. Levine
Director
/s/ Ronald A. Rosenfeld
Ronald A. Rosenfeld
Director
/s/ Spiros J. Voutsinas
Spiros J. Voutsinas
Director
3/1/13
3/1/13
3/1/13
3/1/13
3/1/13
3/1/13
/s/ Joseph R. Ficalora
Joseph R. Ficalora
President, Chief Executive Officer,
and Director
(Principal Executive Officer)
/s/ John J. Pinto
John J. Pinto
Executive Vice President and
Chief Accounting Officer
(Principal Accounting Officer)
/s/ Dominick Ciampa
Dominick Ciampa
Chairman of the Board of Directors
/s/ Hanif W. Dahya
Hanif W. Dahya
Director
/s/ Max L. Kupferberg
Max L. Kupferberg
Director
/s/ James J. O'Donovan
James J. O'Donovan
Director
/s/ John M. Tsimbinos
John M. Tsimbinos
Director
/s/ Robert Wann
Robert Wann
Senior Executive Vice President, Chief
Operating Officer, and Director
3/1/13
3/1/13
3/1/13
3/1/13
3/1/13
3/1/13
3/1/13
3/1/13
166
STATEMENT RE: RATIO OF EARNINGS TO FIXED CHARGES
EXHIBIT 12.0
(dollars in thousands)
Including Interest Paid on Deposits:
Earnings before income taxes
Combined fixed charges:
Interest expense on deposits
Interest expense on borrowed funds
Appropriate portion (1/3) of rent expenses
Total fixed charges
Earnings before income taxes and fixed charges
Ratio of earnings to fixed charges
Excluding Interest Paid on Deposits:
Earnings before income taxes
Combined fixed charges:
Interest expense on borrowed funds
Appropriate portion (1/3) of rent expenses
Total fixed charges
Earnings before income taxes and fixed charges
Ratio of earnings to fixed charges
Years Ended December 31,
2011
2012
2010
$ 780,908
$ 734,577
$ 837,471
144,166
486,914
11,282
$ 642,362
$1,423,270
2.22x
157,173
509,070
9,892
$ 676,135
$1,410,712
2.09x
216,540
517,291
12,016
$ 745,847
$1,583,318
2.12x
$ 780,908
$ 734,577
$ 837,471
486,914
11,282
$ 498,196
$1,279,104
2.57x
509,070
9,892
$ 518,962
$1,253,539
2.42x
517,291
12,016
$ 529,307
$1,366,778
2.58x
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
EXHIBIT 23.0
The Board of Directors
New York Community Bancorp, Inc.:
We consent to the incorporation by reference in the registration statements (Nos. 333,182334, 333-146512, 333-
135279, 333-130908, 333-110361, 333-105901, 333-89826, 333-66366, 333-51998, and 333-32881) on Form S-8,
and the registration statements (Nos. 333-129338, 333-105350, 333-100767, 333-86682, 333-150442, 333-152147
and 333-166080) on Form S-3 of New York Community Bancorp, Inc. and subsidiaries (the “Company”) of our
reports dated March 1, 2013 relating to (i) the consolidated statements of condition of New York Community
Bancorp, Inc. and subsidiaries as of December 31, 2012 and 2011, and the related consolidated statements of income
and comprehensive income, changes in stockholders’ equity, and cash flows for each of the years in the three-year
period ended December 31, 2012, and (ii) the effectiveness of internal control over financial reporting as of
December 31, 2012, which reports appear in the December 31, 2012 annual report on Form 10-K of New York
Community Bancorp, Inc.
New York, New York
March 1, 2013
NEW YORK COMMUNITY BANCORP, INC.
CERTIFICATIONS
EXHIBIT 31.1
I, Joseph R. Ficalora, certify that:
1. I have reviewed this annual report on Form 10-K of New York Community Bancorp, Inc.;
2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to
state a material fact necessary to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial information included in this annual report,
fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in
which this report is being prepared;
b) designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles;
c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report
our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation; and
d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred
during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control
over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of
directors (or persons performing the equivalent functions):
a) all significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process,
summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other employees who have a significant
role in the registrant’s internal control over financial reporting.
DATE: March 1, 2013
BY: /s/ Joseph R. Ficalora
Joseph R. Ficalora
President and Chief Executive Officer
(Duly Authorized Officer)
NEW YORK COMMUNITY BANCORP, INC.
CERTIFICATIONS
EXHIBIT 31.2
I, Thomas R. Cangemi, certify that:
1. I have reviewed this annual report on Form 10-K of New York Community Bancorp, Inc.;
2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to
state a material fact necessary to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial information included in this annual report,
fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in
which this report is being prepared;
b) designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles;
c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report
our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation; and
d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred
during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control
over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of
directors (or persons performing the equivalent functions):
a) all significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process,
summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other employees who have a significant
role in the registrant’s internal control over financial reporting.
DATE: March 1, 2013
BY: /s/ Thomas R. Cangemi
Thomas R. Cangemi
Senior Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
NEW YORK COMMUNITY BANCORP, INC.
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADDED BY
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
EXHIBIT 32.0
In connection with the Annual Report of New York Community Bancorp, Inc. (the “Company”) on Form 10-K for
the fiscal year ended December 31, 2012 as filed with the Securities and Exchange Commission (the “Report”), the
undersigned certify, pursuant to 18 U.S.C. Section 1350, as added by Section 906 of the Sarbanes-Oxley Act of
2002, that:
1.
2.
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange
Act of 1934; and
The information contained in the Report fairly presents, in all material respects, the financial condition
and results of operations of the Company as of and for the period covered by the Report.
DATE: March 1, 2013
DATE: March 1, 2013
BY: /s/ Joseph R. Ficalora
Joseph R. Ficalora
President and Chief Executive Officer
(Duly Authorized Officer)
BY:
/s/ Thomas R. Cangemi
Thomas R. Cangemi
Senior Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
NEW YORK COMMUNITY
BANCORP, INC.
615 MERRICK AVENUE, WESTBURY, NEW YORK 11590
www.myNYCB.com ir@myNYCB.com
(516) 683 - 4420