Poised
for
Growth
2 017 A N N UA L R E P O R T
N E W YO R K C O M M U N I T Y B A N C O R P, I N C .
$49.1B
T O TA L A S S E T S
Our assets totaled $49.1 billion at the end of December 31, 2017.
$29.1B
D E P O S I T S
With 255 branches in Metro New York, New Jersey, Ohio, Florida, and
Arizona, our deposits at December 31, 2017 totaled $29.1 billion.
8000
7000
6000
5000
4000
3000
2000
1000
0
30000
25000
20000
15000
10000
5000
0
2000
1500
1000
500
0
M U LT I - FA M I LY
L OA N P O R T F O L I O
(in millions)
$25,989
$26,961
$28,092
$23,849
$20,714
12/31/13
12/31/14
12/31/15
12/31/16
12/31/17
Originations:
$7,417
$7,584
$9,214
$5,685
$5,378
Net Charge-Offs
(Recoveries):
$11
$0
$(4)
$0
$0
C O M M E R C I A L R E A L E S TAT E
LOA N P O R T F O L I O
(in millions)
$7,366
$7,637
$7,860
$7,727
$7,325
12/31/13
12/31/14
12/31/15
12/31/16
12/31/17
Originations:
$2,168
$1,661
$1,842
$1,180
$1,039
Net Charge-Offs
(Recoveries):
$0
$1
$(1)
$(1)
$0
S P E C I A L T Y F I N A N C E
L OAN AND LEASE POR TFO LI O
(in millions)
$1,584
$1,286
$895
$635
$172
12/31/13
12/31/14
12/31/15
12/31/16
12/31/17
Originations:
$258
Net Charge-Offs:
$0
$848
$0
$1,068
$1,266
$1,784
$0
$0
$0
LOANS
AT 12/31/17
1%
1– 4 FAMILY
6%
C & I
1%
ADC
19%
CRE
73%
MULTI- FAMILY
TOTAL HFI LOANS:
$ 38.4B
AVERAGE YIELD ON LOANS:
3.6 8%
DEPOSITS
AT 12/31/17
8%
NON-INTEREST-
BEARING
30%
CDs
18%
SAVINGS
44%
INTEREST-BEARING
CHECKING AND MMA
TOTAL DEPOSIT S:
$ 29.1B
AVERAGE COST OF
INTEREST-BEARING DEPOSIT S:
0.97%
1-4 Family
C&I
ADC
CRE
Multi-Family
Non-Interest-Bearing
CDs
Savings
Interest-Bearing Checking and MMA
CAGR:
74.2%
4000
3000
2000
1000
0
T O T A L R E T U R N
O N I N V E S T M E N T
NYCB
(a)
Peer Group
3,843%
4,682%
4,784%
4,265%
4,319%
4,106%
2,754%
2,670%
3,069%
CAGR
SINCE IPO:
23.1%
2,059%
717%
306%
203%
179%
286%
231%
299%
459%
492%
530%
722%
804%
11/23/93
12/31/99
12/31/08
12/31/09
12/31/10
12/31/11
12/31/12
12/31/13
12/31/14
12/31/15
12/31/16
12/31/17
AS A RESULT OF NINE STOCK SPLITS BETWEEN1994 AND 2004, OUR CHARTER SHAREHOLDERS HAVE 2,700 SHARES OF NYCB
STOCK FOR EACH 100 SHARES ORIGINALLY PURCHASED.
5000
(a)Bloomberg
4000
3000
2000
1000
0
28
BRANCHES
Ohio Savings Bank
141
BRANCHES
Queens County Savings Bank
Richmond County Savings Bank
Roslyn Savings Bank
Roosevelt Savings Bank
Atlantic Bank
45
BRANCHES
Garden State Community Bank
14
BRANCHES
AmTrust Bank
27
BRANCHES
AmTrust Bank
Poised for Growth | 1
Dear Fellow Shareholders:
The past year did not turn out to be the year we envisioned it to be. While our financial results were certainly respectable,
the ter mination of the Astoria Financial Corporation merger continued to negatively impact the value of our shares. As
shareholders ourselves, everyone at the Company from senior management to the Board of Directors shares your frustra-
tion with the share price performance.
Our 2017 results would have been substantially better had the plan to merge with Astoria been consummated. Financially
and strategically, the merger was a well-conceived transaction, which was overwhelmingly approved by both sets of
shareholders. In addition, the proposed transaction would have significantly transformed our organization. Not only would
it have catapulted us to $65 billion in total assets, but the proposed transaction would have been accretive to both our
earnings per share and tangible book value per share, made the combined company the second largest regional bank
within the New York City metropolitan marketplace, improved our funding mix, and we would have been able to resume
our balance sheet growth strategy much sooner.
While the termination of the Astoria transaction left the Company facing several challenges, historically, we have always
risen to whatever challenges we are presented with, and this time is no different. We remain optimistic about our growth
prospects given the consistent strength of our business model, our historical capacity for value creation, and our anticipa-
tion for regulatory change.
Setting the Stage for Growth
During the first half of 2017, we executed three strategies designed to better position the Company for growth in the
second half of the year and beyond.
First, on March 17, 2017, we issued 515,000 shares of preferred stock. The offering generated capital of $502.8 million.
It immediately improved our regulatory capital ratios even further, reduced our CRE concentration, and supports our plans
for future growth.
Second, on June 27, 2017, the Company announced that it had entered into an agreement to sell its mortgage banking
business, which was acquired as part of its 2009 FDIC-assisted acquisition of AmTrust Bank, to Freedom Mortgage Cor-
po ration. This sale included both our origination and servicing platforms, as well as our mortgage servicing rights portfolio.
$28.1B
M U LT I - FA M I LY LOA N S
With a portfolio of $28.1 billion at the end of December,
we are a leading producer of multi-family loans in New York City.
2 | NYCB
Third, the Company received approval from the FDIC to sell the assets covered under our Loss Share Agreements and
entered into an agreement to sell the majority of our one-to-four family residential mortgage-related assets to an affiliate
of Cerberus Capital Management, L.P.
These last two strategies collectively generated a one-time pre-tax gain of $82 million and resulted in the Company
receiving in excess of $2 billion in cash from the transactions.
These actions laid the foundation for our future growth by allowing us to re-focus on our traditional business model.
Historically, this focus on our traditional business model has resulted in strong returns for our shareholders.
While the growth since our initial public offering on November 23, 1993 has been impressive, more recently, our growth
has been held in check due to the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”),
specifically, the $50 billion in assets threshold to be considered a Systemically Important Financial Institution (“SIFI”).
Since the end of 2011, when we first approached our primary regulators for their guidance on our becoming a SIFI bank,
(so as to acquire a bank which was larger than us), we have been in constant communication so that we would be pre-
pared to meet their expectations to growing above $50 billion in assets. In the interim, we invested over $180 million into
becoming SIFI compliant. These costs were allocated to various resources, including additional personnel in certain regulatory-
facing departments, our credit risk management processes, systems and technology upgrades, and into enhancing our
capital planning and stress testing capabilities.
At this juncture, we have incurred the majority of our SIFI-related costs and regulatory relief notwithstanding, the Company
plans to resume meaningful balance sheet growth in 2018.
Regulatory Relief Advances
For the past several years, we have taken the opportunity in this letter to discuss with you our thoughts on the impact to
the Company and to the industry as a whole, from overly burdensome, and in some cases, unnecessary regulations. We
have also shared with you our hopes that some of these regulations would be eased in the coming years. Specifically,
that the SIFI threshold would, at some point, be increased to a higher level.
We are encouraged by the progress made in 2017 and in the early part of 2018 on this front. On March 14, 2018, the Senate
passed, by a vote of 67 to 31, S.2155, otherwise known as the Economic Growth, Regulatory Relief, and Consumer
Protection Act. This is an important piece of legislation, as it is the first that attempts to fix many of the flaws that are a
part of the Dodd-Frank Act. The legislation does not alter how the large, complex commercial and investment banks are
regulated. Rather, it removes many of the hurdles that were unfairly applied to community and regional banks. This is
“ The Company plans to resume meaningful
balance sheet growth in 2018.”
Poised for Growth | 3
exciting news for the Company, the industry, and for consumers. Among other things, the legislation ends company run
stress tests for banks under $250 billion in assets, it simplifies capital calculations for community banks, and more impor-
tantly, it raises the threshold for designation as a SIFI to $250 billion from the current $50 billion. The legislation now goes to
the House of Representatives for a vote, where we hope it receives the same level of bi-partisan support that it received
in the Senate.
The benefits to the Company from raising the SIFI threshold are many, but most importantly given our business model,
we would be better positioned to execute our balance sheet growth strategy, either organically or through acquisitions,
without the regulatory constraints and expectations that have been in place over the past several years.
Another important piece of legislation, which has already benefited the Company and should continue to do so going forward
is the recently enacted Tax Cuts and Jobs Act. At enactment in December of 2017, the Company recorded a one-time,
net tax benefit of $42 million. Longer term, as a result of this Act, we expect that our effective tax rate will be approxi-
mately 26.5% compared to 37% previously.
A Quarter of a Century of Enhancing Shareholder Value
In 2018, the Company will be celebrating its 25th year as a publicly-traded company. During this time, we have witnessed
many events, including multiple credit cycles, culminating in the period commonly referred to as the Great Recession
(2008–2011). The Company successfully navigated through each of these cycles with its asset quality metrics unscathed.
It did so by staying true to its roots and focusing on the three core tenets of its business model: conservative lending across
all of our lending businesses, organic growth combined with growth through acquisition, and running an efficient operation.
From our IPO date to December 31, 2017, we have provided our charter shareholders with a total return on investment of
4,106%. Also, in our 24 years as a publicly-traded company, we have returned $6.4 billion to our common shareholders,
including $5.5 billion in cash dividends and $937 million in share repurchases.
In Conclusion
Whatever the future holds for the Company and the financial industry as a whole, we are steadfast in our belief that we
are poised for meaningful growth. If the past proves anything, it is that we have created great value over time for our
shareholders when we are allowed to execute our traditional business model without any artificial restraints.
On behalf of our Board of Directors, our management team, and our employees, who support our efforts, we thank you
for your continued investment and for the confidence it conveys in our leadership.
Sincerely yours,
JOSEPH R. FICALORA
President and
Chief Executive Officer
DOMINICK CIAMPA
Chairman of the Board
April 10, 2018
LEFT TO RIGHT:
James J. Carpenter, Dominick Ciampa, Robert Wann, Thomas R. Cangemi, and Joseph R. Ficalora
4 | NYCB
Sustaining Our Commitment to the
Communities We Serve
THROUGHOUT OUR CORPORATE HISTORY, BOTH THE COMPANY AND ITS EMPLOYEES HAVE PLACED
A GREAT DEAL OF FOCUS ON THE COMMUNITIES WHICH THEY SERVE. AS WE ENTER THE 25TH YEAR
OF OUR LIFE AS A PUBLIC COMPANY, THIS FOCUS CONTINUES STRONGER THAN EVER. AT NEW YORK
COMMUNITY BANCORP, WE BELIEVE THAT COMMUNITY INVOLVEMENT AND PHILANTHROPY ARE
THE CORNERSTONES FOR CREATING POSITIVE CHANGE IN OUR COMMUNITIES. WE BELIEVE THAT
THE RELATIONSHIP BETWEEN THE COMPANY AND ITS COMMUNITIES IS A SYNERGISTIC ONE—THE
MORE WE GIVE TO OUR COMMUNITIES, THE MORE WE RECEIVE FROM THEM. SUPPORTING OUR
COMMUNITIES WITH FUNDS, TIME, AND TALENT ARE AN INTEGRAL PART OF WHAT MAKES US A
COMMUNITY-ORIENTED BANK!
Last year, more than 1,500 grants were awarded by the Bank and our
two affiliated foundations. The aggregate amount of the grants was $6.1
million to over 600 worthwhile organizations.
The Company supports an extensive array of not-for-profit organizations
throughout its five state market, and this list keeps growing each year.
For instance, in 2017, we joined with Team Rubicon, an organization that
unites the skills and expertise of military veterans with first responders
to rapidly deploy emergency response teams during a natural disaster.
Our $25,000 donation helped Team Rubicon with their hurricane relief
efforts last year. Other organizations receiving our support include: Island
Harvest, St. Jude Children’s Hospital, the Leukemia and Lymphoma
Society, the Greater Cleveland United Way, Queens College, and the
CARE Elementary School in Miami.
In addition to the financial support we provide, we also give back through
volunteering. Many of our employees, from branch personnel to senior
management, donate their time and efforts to causes that are near and
dear to them. Last year our employees donated more than 4,500 hours
to worthy causes. These causes ranged from mentoring individuals with
intellectual or other developmental disabilities on job searches to collect-
ing food donations. Our Ohio Savings Bank division collected more than
3,000 pounds of food and raised an additional $12,500 in donations in
support of Cleveland and Akron regional food banks. Likewise, the
Operation Hope Veterans Day collection on Long Island collected more
than 1,600 pounds of food and $1,600 of donations.
Our Elite Banking program, which was launched only a few years ago, is
another, unique way that we can thank our largest depositors, while at
the same time, provide charitable donations. Last year, the program
resulted in our giving $235,000 to 44 organizations designated by our
depositors.
We also celebrated the one year anniversary of our Marquee Partnership
with the “NYCB Live Home of Nassau Veterans Memorial Coliseum pre-
sented by New York Community Bank.” In its first year since re-opening,
the venue hosted 125 events, which exposed our brand to over 600,000
attendees, while helping the local economy and honoring our veterans.
1.
2.
1. Team Rubicon unites the skills and experiences of military veterans with
first responders to rapidly deploy emergency response teams.
2. On Veterans Day, NYCB volunteers gathered at the NYCB Live: Home of
the Nassau Veterans Memorial Coliseum to collect food and cash dona-
tions in support of Island Harvest’s Operation Hope program serving
Long Island vets in need of food assistance.
3.
3. On October 26th, a team of NYCB employees joined forces with Rebuilding
Together Long Island (RTLI) to help a resident in New York’s Brentwood
community. At the time, the homeowner was in a physical rehab facility
and required an access ramp before she could return to her Long Island
residence.
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, 2017
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
(Address of principal executive offices)
(Zip code)
(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,
Bifurcated Option Note Unit SecuritiES SM, and Fixed-to-
Floating Rate Series A Noncumulative Perpetual
Preferred Stock, $0.01 par value
(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:31) No (cid:30)(cid:29)
(cid:29)
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:30) No (cid:31)(cid:29)
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:31) No (cid:30)
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:30)(cid:29)
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:31) No (cid:30)
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or
an emerging growth company. See the definitions of “accelerated filer,” “large accelerated filer,” “smaller reporting company,” and “emerging
growth company” in Rule 12b-2 of the Exchange Act. Large Accelerated Filer (cid:31) Accelerated Filer (cid:30) Non-Accelerated Filer (cid:30) Smaller Reporting
Company (cid:30)(cid:29)Emerging Growth Company (cid:30)(cid:29)
(cid:29)
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any
new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act (cid:30)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes (cid:30) No (cid:31)(cid:29)
As of June 30, 2017, the aggregate market value of the shares of common stock outstanding of the registrant was $6.2 billion, excluding 13,307,950
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
30, 2017, $13.13 per share, as reported by the New York Stock Exchange.
The number of shares of the registrant’s common stock outstanding as of February 21, 2018 was 490,214,307 shares.
Documents Incorporated by Reference
Portions of the definitive Proxy Statement for the Annual Meeting of Shareholders to be held on June 5, 2018 are incorporated by reference into Part
III.
CROSS REFERENCE INDEX
Cautionary Statement Regarding Forward-Looking Language
Glossary
PART I
Business
Item 1.
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.
Item 9A. Controls and Procedures
Item 9B. Other Information
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
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
Item 16. Form 10-K Summary (None)
Signatures
Certifications
Page
1
3
6
19
30
30
30
30
31
34
35
74
78
145
145
146
146
146
146
146
147
147
149
150
153
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”).
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING LANGUAGE
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. Although we believe that our plans, intentions, and expectations as
reflected in these forward-looking statements are reasonable, we can give no assurance that they will be achieved or
realized.
Our ability to predict results or the actual effects of our plans and strategies is inherently uncertain. Accordingly,
actual results, performance, or achievements could differ materially from those contemplated, expressed, or implied
by the forward-looking statements contained in this report.
There are a number of factors, many of which are beyond our control, that could cause actual conditions, events,
or results to differ significantly from those described in our forward-looking statements. These factors include, but are
not limited to:
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
general economic conditions, either nationally or in some or all of the areas in which we and our customers
conduct our respective businesses;
conditions in the securities markets and real estate markets or the banking industry;
changes in real estate values, which could impact the quality of the assets securing the loans in our portfolio;
changes in interest rates, which may affect our net income, prepayment penalty income, and other future
cash flows, or the market value of our assets, including our investment securities;
changes in the quality or composition of our loan or securities portfolios;
changes in our capital management policies, including those regarding business combinations, dividends,
and share repurchases, among others;
potential increases in costs if the Company is designated a “Systemically Important Financial Institution”
under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”);
heightened regulatory focus on CRE concentration and related limits that have been, or may in the future
be, imposed by regulators;
changes in competitive pressures among financial institutions or from non-financial institutions;
changes in deposit flows and wholesale borrowing facilities;
changes in the demand for deposit, loan, and investment products and other financial services in the markets
we serve;
our timely development of new lines of business and competitive products or services in a changing
environment, and the acceptance of such products or services by our customers;
our ability to obtain timely shareholder and regulatory approvals of any merger transactions or corporate
restructurings we may propose;
our ability to successfully integrate any assets, liabilities, customers, systems, and management personnel
we may acquire into our operations, and our ability to realize related revenue synergies and cost savings
within expected time frames;
potential exposure to unknown or contingent liabilities of companies we have acquired, may acquire, or
target for acquisition;
failure to obtain applicable regulatory approvals for the payment of future dividends;
the ability to pay future dividends at currently expected rates;
the ability to hire and retain key personnel;
the ability to attract new customers and retain existing ones in the manner anticipated;
changes in our customer base or in the financial or operating performances of our customers’ businesses;
1
•
•
•
•
•
•
•
•
•
•
•
•
•
•
any interruption in customer service due to circumstances beyond our control;
the outcome of pending or threatened litigation, or of matters before regulatory agencies, whether currently
existing or commencing in the future;
environmental conditions that exist or may exist on properties owned by, leased by, or mortgaged to the
Company;
any interruption or breach of security resulting in failures or disruptions in customer account management,
general ledger, deposit, loan, or other systems;
operational issues stemming from, and/or capital spending necessitated by, the potential need to adapt to
industry changes in information technology systems, on which we are highly dependent;
the ability to keep pace with, and implement on a timely basis, technological changes;
changes in legislation, regulation, policies, or administrative practices, whether by judicial, governmental,
or legislative action, including, but not limited to, the Dodd-Frank Act, and other changes pertaining to
banking, securities, taxation, rent regulation and housing, financial accounting and reporting, environmental
protection, and insurance, and the ability to comply with such changes in a timely manner;
changes in the monetary and fiscal policies of the U.S. Government, including policies of the U.S.
Department of the Treasury and the Board of Governors of the Federal Reserve System;
changes in accounting principles, policies, practices, or guidelines;
changes in our estimates of future reserves based upon the periodic review thereof under relevant regulatory
and accounting requirements;
changes in regulatory expectations relating to predictive models we use in connection with stress testing
and other forecasting or in the assumptions on which such modeling and forecasting are predicated;
changes in our credit ratings or in our ability to access the capital markets;
natural disasters, war, or terrorist activities; and
other economic, competitive, governmental, regulatory, technological, and geopolitical factors affecting
our operations, pricing, and services.
In addition, the timing and occurrence or non-occurrence of events may be subject to circumstances beyond our
control.
Furthermore, we routinely evaluate opportunities to expand through acquisitions and conduct due diligence
activities in connection with such opportunities. As a result, acquisition discussions and, in some cases, negotiations,
may take place at any time, and acquisitions involving cash or our debt or equity securities may occur.
See Item 1A, “Risk Factors” in this annual report and in our other SEC filings for a further discussion of
important risk factors that could cause actual results to differ materially from our forward-looking statements.
Readers should not place undue reliance on these forward-looking statements, which reflect our expectations
only as of the date of this report. We do not assume any obligation to revise or update these forward-looking statements
except as may be required by law.
2
BASIS POINT
GLOSSARY
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 COMMON SHARE
Book value per common share refers to the amount of common stockholders’ equity attributable to each
outstanding share of common stock, and is calculated by dividing total stockholders’ equity less preferred stock at the
end of a period, by the number of shares outstanding at the same date.
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. See the definition of “Loss
Sharing Agreements” that appears later in this glossary.
CRE CONCENTRATION RATIO
Refers to the sum of multi-family, non-owner occupied CRE, and acquisition, development, and construction
(“ADC”) loans divided by total risk-based capital.
DEBT SERVICE COVERAGE RATIO (“DSCR”)
An indication of a borrower’s ability to repay a loan, the DSCR generally measures the cash flows available to
a borrower over the course of a year as a percentage of the annual interest and principal payments owed during that
time.
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).
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.
EFFICIENCY RATIO
Measures total operating expenses as a percentage of the sum of net interest income and non-interest income.
3
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 had made to originate new one-to-four family loans at specific (i.e., locked-in)
interest rates.
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 RATIO (“LTV”)
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 called 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.
The loss sharing agreements with respect to the one-to-four family loans and home equity loans we acquired in these
transactions extended for a period of ten years from the respective dates of acquisition. Such loans are referred to as
“covered loans.” As of September 30, 2017, the loss sharing agreements are no longer in effect.
MORTGAGE BANKING INCOME
Refers to the income generated through our mortgage banking business, 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”)
The right to service mortgage loans for others is recognized as an asset, and recorded at fair value, when our
loans are sold or securitized, servicing retained.
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 income generated by loans and securities and the interest expense produced
by deposits and borrowed funds.
4
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 90 days or more past due or when it is deemed
to be impaired because we no longer expect to collect all amounts due according to the contractual terms of the loan
agreement. 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 current and we have reasonable assurance that the loan will be fully collectible.
NON-COVERED LOANS AND OREO
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 that are 90 days or more past due and still accruing
interest. Non-performing assets consist of non-performing loans and OREO.
OREO AND OTHER REPOSSESSED ASSETS
Includes real estate owned by the Company which was acquired either through foreclosure or default.
Repossessed assets are similar, except they are not real estate-related assets.
RENT-REGULATED APARTMENTS
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” and “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 (together, “rent-regulated”)
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.
SYSTEMICALLY IMPORTANT FINANCIAL INSTITUTION (“SIFI”)
A bank holding company with total consolidated assets that average more than $50 billion over the four most
recent quarters is designated a “Systemically Important Financial Institution” under the Dodd-Frank Wall Street
Reform and Consumer Protection Act (the “Dodd-Frank Act”) of 2010.
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.
5
ITEM 1.
BUSINESS
General
PART I
New York Community Bancorp, Inc. is organized under Delaware Law as a multi-bank holding company with
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”). The Community
Bank currently has 225 branches in Metro New York, New Jersey, Ohio, Florida, and Arizona, and the Commercial
Bank currently has 30 branches in Metro New York.
Customers of the Commercial Bank may transact their business at any of our Community Bank branches, and
Community Bank customers may transact their business at any of the branches of the Commercial Bank. In addition,
customers of the Banks have access to their accounts through our ATMs in all five states.
On September 17, 2015, the Company submitted an application to the Federal Deposit Insurance Corporation
(the “FDIC”) and the New York State Department of Financial Services (the “NYSDFS”) requesting approval to
merge the Commercial Bank with and into the Community Bank. The merger was approved by the NYSDFS on
September 16, 2016 and, as of the date of this filing, was pending the approval of the FDIC. Upon completion of the
pending merger, the 30 Commercial Bank branches will continue operations as branches of the Community Bank.
On March 17, 2017, we issued 515,000 shares of preferred stock. The offering generated capital of
$502.8 million, net of underwriting and other issuance costs, for general corporate purposes, with the bulk of the
proceeds being distributed to the Community Bank.
On July 28, 2017, the Company completed the previously announced sale of its one-to-four family residential
mortgage-backed assets covered under its Loss Share Agreements (“LSA”) with the FDIC, to FirstKey Mortgage,
LLC, an affiliate of Cerberus Capital Management, L.P. Additionally, on September 29, 2017, the Company
completed the previously announced sale of its mortgage banking business, which was acquired as part of its 2009
FDIC assisted acquisition of AmTrust Bank (“AmTrust”) to Freedom Mortgage Corporation. The sale of the mortgage
banking business effectively takes us out of the one-to-four family residential wholesale lending business.
New York Community Bank
Established in 1859, the Community Bank is a New York State-chartered savings bank with 225 branches that
currently operate through seven local divisions. We compete for depositors in these diverse markets by emphasizing
service and convenience, with a comprehensive menu of traditional and non-traditional products and services, and
access to multiple service channels, including online banking, mobile banking, and banking by phone.
In New York, we currently serve our Community Bank customers through Roslyn Savings Bank, with 44
branches on Long Island, a suburban market east of New York City comprised of Nassau and Suffolk counties; Queens
County Savings Bank, with 38 branches in the New York City borough of Queens; Richmond County Savings Bank,
with 20 branches in the borough of Staten Island; and Roosevelt Savings Bank, with seven branches in the borough
of Brooklyn. In the Bronx, we currently have two branches that operate directly under the name “New York
Community Bank.”
In New Jersey, we serve our Community Bank customers through 45 branches that operate under the name
Garden State Community Bank. In Florida and Arizona, where we have 27 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 also are a leading producer of multi-family loans in New York City, with an emphasis on non-luxury
residential apartment buildings with rent-regulated units that feature below-market rents. In addition to multi-family
loans, which are our principal asset, we originate commercial real estate (“CRE”) loans (primarily in New York City,
as well as on Long Island) and, to a much lesser extent, acquisition, development, and construction (“ADC”) loans,
and commercial and industrial (“C&I”) loans. C&I loans consist of specialty finance loans and leases, and other C&I
loans that are typically made to small and mid-size business in Metro New York.
New York Commercial Bank
The Commercial Bank is a New York State-chartered commercial bank with 30 branches in Manhattan, Queens,
Brooklyn, Westchester County, and Long Island, including 18 that operate under the name “Atlantic Bank.”
6
Established in December 2005, 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 online banking, mobile banking, and banking by
phone.
Online Information about the Company and the Banks
our
We
also
serve
customers
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 these
websites.
through
three
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, and are posted to the Investor Relations portion of our websites. The websites also provide
information regarding our Board of Directors and management team, 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.
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 and ADC loans. In contrast, our specialty finance loans and leases
are generally made to large corporate obligors that participate in stable industries nationwide.
Competition for Deposits
The combined population of the 26 counties where our branches are located is approximately 31.5 million, and
the number of banks and thrifts we compete with currently exceeds 300. With total deposits of $29.1 billion at
December 31, 2017, we ranked fourteenth among all bank and thrift depositories serving these 26 counties. We also
ranked third among all banks and thrifts in Union County, New Jersey, and third among all banks and thrifts in
Richmond, Queens, and Nassau Counties in New York. (Market share information was provided by S&P Global
Market Intelligence.) 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 seek to compete
for deposits is influenced by the liquidity needed to fund our loan production and other outstanding commitments.
We compete 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 225 Community Bank branches and
30 Commercial Bank branches, we have 271 ATM locations, including 247 that operate 24 hours a day. Our customers
also have 24-hour access to their accounts through our bank-by-phone service, through mobile banking, and online
through
and
www.NYCBfamily.com. We also offer certain money market accounts, certificates of deposit (“CDs”), and checking
accounts through a dedicated website: www.myBankingDirect.com.
www.NewYorkCommercialBank.com,
www.myNYCB.com,
websites,
three
our
7
We also compete by complementing our broad selection of traditional banking products with an extensive menu
of alternative financial services, including annuities, life and long-term care insurance, and mutual funds of various
third-party service providers.
In addition to checking and savings accounts, Individual Retirement Accounts, and CDs for both businesses and
consumers, we offer a suite of cash management products to address the needs of small and mid-size businesses and
professional associations.
Another competitive advantage is our strong community presence, with April 14, 2017 having marked the 158th
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 lender 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 this lending niche. In addition to the money
center, regional, and local banks we compete with in this market, we compete with insurance companies and other
types of lenders. Certain of the banks we compete with sell the loans they produce to Fannie Mae and Freddie Mac.
Our ability to compete for CRE loans depends on the same factors that impact our ability to compete for multi-
family credits, and the degree to which other CRE lenders choose to offer loan products similar to ours.
While we continue to originate ADC and C&I loans for investment, such loans represent a small portion of our
loan portfolio as compared to multi-family and CRE loans.
Environmental Issues
We encounter certain environmental risks in our lending activities and other operations. 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. Depending on the results of an assessment, appropriate measures are taken to address the
identified risks. In addition, we order an updated environmental analysis prior to foreclosing on such properties, and
typically hold foreclosed multi-family, CRE, and ADC properties 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 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 and
address potential issues, including by avoiding taking ownership or control of contaminated properties.
Subsidiary Activities
The Community Bank has formed, or acquired through merger transactions, 25 active subsidiary corporations.
Of these, 18 are direct subsidiaries of the Community Bank and 7 are subsidiaries of Community Bank-owned entities.
8
The 18 direct subsidiaries of the Community Bank are:
Name
DHB Real Estate, LLC
Ferry Development Holding Company
Jurisdiction of
Organization Purpose
Arizona
Delaware
NYCB Mortgage Company, LLC
Delaware
NYCB Specialty Finance Company,
LLC
Woodhaven Investments, LLC.
Delaware
Delaware
Eagle Rock Investment Corp.
New Jersey
Pacific Urban Renewal, Inc.
Synergy Capital Investments, Inc.
New Jersey
New Jersey
BSR 1400 Corp.
Bellingham Corp.
NYCB Insurance Agency, Inc.
New York
New York
New York
Main Omni Realty Corp.
NYB Realty Holding Company, LLC
New York
New York
New York
RCBK Mortgage Corp.
New York
RSB Agency, Inc.
Richmond Enterprises, Inc.
New York
Roslyn National Mortgage Corporation New York
100 Duffy Realty, LLC
New York
Organized to own interests in real estate
Formed to hold and manage investment portfolios for
the Company
Holding company for Walnut Realty Holding
Company, LLC
Originates asset-based, equipment financing, and
dealer-floor plan loans
Holding company for Ironbound Investment
Company, Inc.
Formed to hold and manage investment portfolios for
the Company
Owns a branch building
Formed to hold and manage investment portfolios for
the Company
Organized to own interests in real estate
Organized to own interests in real estate
Receives revenues from third parties on the sale of
non-deposit insurance products
Organized to own interests in real estate
Holding company for subsidiaries owning an interest
in real estate
Organized to own interests in loans
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
Owns a back-office building
The seven subsidiaries of Community Bank-owned entities are:
Name
Peter B. Cannell & Co., Inc.
Jurisdiction of
Organization Purpose
Delaware
Roslyn Real Estate Asset Corp.
Delaware
Walnut Realty Holding Company, LLC Delaware
Delaware
Your New REO, LLC
Ironbound Investment Company, LLC.
Florida
New York
1400 Corp.
Prospect Realty Holding Company, LLC New York
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
Owns two back-office buildings
Owns a website that lists bank-owned properties for
sale
Organized for the purpose of investing in mortgage-
related assets
Holding company for Roslyn Real Estate Asset Corp.
Owns a back-office building
There are 34 additional entities that are subsidiaries of a Community Bank-owned entity organized to own
interests in real estate.
9
The Commercial Bank has three active subsidiary corporations, two of which are subsidiaries of Commercial
Bank-owned entities.
The one direct subsidiary of the Commercial Bank is:
Name
Beta Investments, Inc.
Jurisdiction of
Organization Purpose
Delaware
Holding company for Omega Commercial Mortgage
Corp. and Long Island Commercial Capital Corp.
The two subsidiaries of Commercial Bank-owned entities are:
Name
Omega Commercial Mortgage Corp.
Jurisdiction of
Organization Purpose
Delaware
Long Island Commercial Capital Corp. New York
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. See Note
8, “Borrowed Funds,” in Item 8, “Financial Statements and Supplementary Data,” for a further discussion of the
Company’s special business trusts.
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, 2017, the number of full-time equivalent employees (“FTEs”) was 3,096, including 1,556
branch-related FTEs. 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. 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 annual 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 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. On September 17, 2015, the Company submitted an application to the FDIC and the NYSDFS requesting
approval to merge the Commercial Bank with and into the Community Bank. The merger was approved by the
NYSDFS on September 16, 2016 and is currently pending the approval of the FDIC.
For the fiscal year ended December 31, 2017, the Community Bank and the Commercial Bank were subject to
regulation and supervision by the NYSDFS, as their chartering agency; by the FDIC, as their insurer of deposits; and
by the Consumer Financial Protection Bureau (the “CFPB”).
The Banks are required to file reports with the NYSDFS, the FDIC, and the CFPB concerning their activities
and financial condition, and are periodically examined by the NYSDFS, the FDIC, and the CFPB to assess compliance
with various regulatory requirements, including with respect to safety and soundness and consumer financial
10
protection regulations. The regulatory structure 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. Changes in
such regulations or in banking legislation could have a material impact on the Company, the Banks, and their
operations, as well as the Company’s shareholders.
The Company is subject to examination, regulation, and periodic reporting under the Bank Holding Company
Act of 1956, as amended (the “BHCA”), as administered by the Board of Governors of the Federal Reserve System
(the “FRB”). Furthermore, the Company would be 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.
In addition, the Company is periodically examined by the Federal Reserve Bank of New York (the “FRB-NY”),
and is required to file certain reports under, and otherwise comply with, the rules and regulations of the SEC under
federal securities laws. 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
Enacted in July 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank
Act”) significantly changed the 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. The
Dodd-Frank Act is complex and comprehensive legislation that impacts practically all aspects of a banking
organization, and represents a significant overhaul of many aspects of the regulation of the financial services industry.
Capital Requirements
In early July 2013, the Federal Reserve Board and the FDIC approved revisions to their capital adequacy
guidelines and prompt corrective action rules to implement the revised standards of the Basel Committee on Banking
Supervision, commonly called Basel III, and to address relevant provisions of the Dodd-Frank Act. “Basel III”
generally refers to two consultative documents released by the Basel Committee on Banking Supervision in December
2009. The “Basel III Rules” generally refer to the rules adopted by U.S. banking regulators in December 2010 to align
U.S. bank capital requirements with Basel III and with the related loss absorbency rules they issued in January 2011,
which include significant changes to bank capital, leverage, and liquidity requirements.
The Basel III Rules include new risk-based capital and leverage ratios, which became effective January 1, 2015,
and revised the definition of what constitutes “capital” for the purposes of calculating those ratios. Under the Basel
III Rules, the Company and the Banks are required to maintain minimum capital in accordance with the following
ratios: (i) a common equity tier 1 capital ratio of 4.5%; (ii) a tier 1 capital ratio of 6% (increased from 4%); (iii) a total
capital ratio of 8% (unchanged from the prior rules); and (iv) a tier 1 leverage ratio of 4%.
In addition, the Basel III Rules assign higher risk weights to certain assets, such as the 150% risk weighting
assigned to exposures that are more than 90 days past due or are on non-accrual status, and to certain commercial real
estate facilities that finance the acquisition, development, or construction of real property. The Basel III Rules also
eliminate the inclusion of certain instruments, such as trust preferred securities, from tier 1 capital. In addition, tier 2
capital is no longer limited to the amount of tier 1 capital included in total capital. Mortgage servicing rights, certain
deferred tax assets, and investments in unconsolidated subsidiaries over designated percentages of common stock will
be required, subject to limitation, to be deducted from capital. Finally, tier 1 capital will include accumulated other
comprehensive income, which includes all unrealized gains and losses on available-for-sale debt and equity securities.
The Basel III Rules also establish a “capital conservation buffer” (consisting entirely of common equity tier 1
capital) that will be 2.5% above the new regulatory minimum capital requirements when it is fully phased in. The
result will be an increase in the minimum common equity tier 1, tier 1, and total capital ratios to 7.0%, 8.5%, and
10.5%, respectively. The phase-in of the new capital conservation buffer requirement began in January 2016 at 0.625%
of risk-weighted assets and will increase by that amount each year until fully implemented in January 2019. An
institution can be subject to limitations on paying dividends, engaging in share repurchases, and paying discretionary
bonuses if its capital levels fall below these amounts. The Basel III Rules also establish a maximum percentage of
eligible retained income that can be utilized for such capital distributions.
11
In September 2017, the Federal Reserve Board, the FDIC, and the Office of the Comptroller of the Currency
(“OCC”) proposed a rule intended to reduce regulatory burden by simplifying several requirements in the agencies’
regulatory capital rule. Most aspects of the proposed rule would apply only to banking organizations that are not
subject to the “advanced approaches” in the capital rule, which are generally firms with less than $250 billion in total
consolidated assets and less than $10 billion in total foreign exposure. The proposal would simplify and clarify a
number of the more complex aspects of the existing capital rule. Specifically, the proposed rule simplifies the capital
treatment for certain ADC loans, mortgage servicing assets, certain deferred tax assets, investments in the capital
instruments of unconsolidated financial institutions, and minority interest. A final rule has not yet been issued.
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.
As a result of the Basel III Rules, new definitions of the relevant measures for the five capital categories took
effect on January 1, 2015. 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 8% or greater, a common equity tier 1 risk-based capital ratio of
6.5% or greater, and a tier 1 leverage 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 6% or greater, a common equity tier 1 risk-based capital ratio of 4.5% or greater,
and a tier 1 leverage 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 6%, a common equity tier 1 risk-based capital ratio of less than 4.5%, or a tier 1
leverage 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 4%, a common equity tier 1 risk-based
capital ratio of less than 3%, or a tier 1 leverage 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.
Stress Testing
Stress Testing for Banks with Assets of $10 Billion to $50 Billion
FDIC and FRB regulations require certain large insured depository institutions and bank holding companies to
conduct annual capital-adequacy stress tests. The rules apply to state non-member banks and bank holding companies
with total consolidated assets of more than $10 billion (“covered institutions”).
Under the rules, each covered institution with between $10 billion and $50 billion in assets is required to conduct
annual stress tests, using the institution’s financial data as of December 31st of the preceding year, to assess the
potential impact of different scenarios on the consolidated earnings and capital and certain related items over a nine-
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quarter, forward-looking planning horizon, taking into account all relevant exposures and activities. The Community
Bank and the Company are required to report the results of the stress tests to the FDIC and the FRB, respectively, on
or before July 31st of each year, and to subsequently publish a summary of the results between October 15th and
October 31st. The rules prescribe the manner and form for such reports and, based on the information reported as well
as other relevant information, the FDIC and FRB are expected to conduct an analysis of the quality of the respective
covered institution’s stress test processes and the related results. The FDIC and FRB envision that feedback concerning
such analysis would be provided to each covered institution through the supervisory process.
As discussed below, under the FRB’s Comprehensive Capital Analysis and Review (“CCAR”) regime,
additional capital stress testing requirements apply to financial institutions whose total consolidated assets average in
excess of $50 billion over four consecutive quarters. At December 31, 2017, the four-quarter average of our total
consolidated assets was $48.7 billion.
Stress Testing for Systemically Important Financial Institutions
Should the four-quarter average of our total consolidated assets exceed $50 billion (the current threshold for a
Systemically Important Financial Institution, or “SIFI”), we would become subject to the FRB’s stress testing
regulations administered under its CCAR capital planning and supervisory process. Under this regime, in addition to
reporting the results of a SIFI’s own capital stress testing, the FRB uses its own models to evaluate whether each SIFI
has the capital, on a total consolidated basis, necessary to continue operating under the economic and financial market
conditions of stressed macroeconomic scenarios identified by the FRB. The FRB’s analysis includes an assessment of
the projected losses, net income, and pro forma capital levels, and the regulatory capital ratio, tier 1 common ratio,
and other capital ratios, for the SIFI, and uses such analytical techniques that the FRB determines to be appropriate to
identify, measure, and monitor any risks of the SIFI that may affect the financial stability of the United States.
Boards of directors of SIFIs are required to review and approve capital plans before they are submitted to the
FRB.
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”).
FDIC Regulations
The discussion that follows 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 as long as such exceptions are reviewed and justified appropriately. The FDIC Guidelines also list a number
of lending situations in which exceptions to the loan-to-value standards are justified.
The FDIC, the OCC, and the FRB (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,
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does not establish specific lending limits but, rather, reinforces and enhances the Agencies’ existing regulations and
guidelines for such lending and portfolio management. Specifically, the CRE Guidance provides that a bank has a
concentration in CRE lending if (1) total reported loans for construction, land development, and other land represent
100% or more of total risk-based capital; or (2) total reported loans secured by multi-family properties, non-farm non-
residential properties (excluding those that are owner-occupied), and loans for construction, land development, and
other land represent 300% or more of total risk-based capital and the bank’s CRE loan portfolio has increased 50% or
more during the prior 36 months. If a concentration is present, management must employ heightened risk management
practices that address key elements, including board and management oversight and strategic planning, portfolio
management, development of underwriting standards, risk assessment and monitoring through market analysis and
stress testing, and maintenance of increased capital levels as needed to support the level of CRE lending.
Throughout this report and others filed by the Company to disclose its consolidated financial condition and
results of operations, the Company refers to its loans secured by non-farm non-residential properties as “commercial
real estate” or “CRE” loans. In addition, it refers to its loans for construction, land development, and other land as
“acquisition, development, and construction” or “ADC” loans.
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, and 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. 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.
In 1993, the Community Bank received grandfathering authority from the FDIC, which it continues to use, to
invest in listed stocks 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.
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.
Insurance of Deposit Accounts
The deposits of the Community Bank and the Commercial Bank are insured up to applicable limits by the
DIF. The maximum deposit insurance provided by the FDIC per account owner is $250,000 for all types of accounts.
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 based on the assigned risk levels. An institution’s assessment rate depends upon the category
to which it is assigned and certain other factors. Assessment rates range from 1.5 to 40 basis points of the institution’s
assessment base, which is calculated as average total assets minus average tangible equity.
In March 2016, the FDIC adopted final rules to impose a surcharge on the quarterly deposit insurance
assessments of insured depository institutions with total consolidated assets of $10 billion or more, in order to fund
the Dodd-Frank Act-mandated increase in the DIF’s designated reserve ratio from 1.15% to 1.35%. The final rules
became effective on July 1, 2016. The surcharge, which equals 4.5 basis points of the institution’s deposit insurance
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assessment base, is in effect for assessments billed after the designated reserve ratio reaches 1.15%, and will continue
until the reserve ratio reaches or exceeds 1.35%, but no later than December 31, 2018.
Insurance of deposits may be terminated by the FDIC upon a finding that an 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 Regulations
Federal Regulation
The Company is currently subject to examination, regulation, and periodic reporting under 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 NYSDFS.
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 codified the source of financial strength policy and required 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.
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.
On January 30, 2017, the FRB issued a final rule that modified the CCAR capital plan and stress testing rules
applicable to bank holding companies with $50 billion or more in total consolidated assets. The new rule excludes the
capital plans of large and noncomplex CCAR firms from CCAR’s qualitative review and provides that the capital
plans of large and noncomplex CCAR firms will no longer be subject to potential objection on qualitative grounds.
The new rule also expands the transition period for new CCAR bank holding companies by (i) moving from
December 31 to September 30 the cutoff date after which a new CCAR bank holding company must submit a capital
plan by April 5 of the second year after it crosses the asset threshold (i.e., April 5, 2020 if it crosses the asset threshold
after September 30, 2018) and (ii) providing that a new CCAR bank holding company will become subject to the
CCAR stress testing rules in the year following the first year in which it submits a capital plan (i.e., 2021 if it crosses
the asset threshold after September 30, 2018). As a result of the new rule, the Company may be required to expand its
current capital planning beginning in 2020 and will be required to expand its current stress testing in 2021.
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New York State Regulation
The Company is 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 Superintendent 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.
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. 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.
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 subsidiaries 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 other federal banking laws. Section 22(h) of the Federal Reserve Act, and
FRB Regulation O adopted thereunder, govern loans by a savings bank or commercial bank to directors, executive
officers, and principal shareholders.
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 generally 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. In
its most recent FDIC CRA performance evaluation, the Community Bank received overall state ratings of
“Satisfactory” for Ohio, Florida, Arizona, and New Jersey, as well as for the New York/New Jersey multi-state region.
Furthermore, the most recent overall FDIC CRA ratings for the Community Bank and the Commercial Bank were
“Satisfactory.”
New York State Regulation
The Community Bank and the Commercial Bank also are 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. Such obligations are substantially similar to those imposed by the CRA.
The latest New York State CRA ratings received by the Community Bank and the Commercial Bank were
“Outstanding” and “Satisfactory,” respectively.
Bank Secrecy and Anti-Money Laundering
Federal laws and regulations impose obligations on U.S. financial institutions, including banks and broker/dealer
subsidiaries, to implement and maintain appropriate policies, procedures, and controls that are reasonably designed to
prevent, detect, and report instances of money laundering and the financing of terrorism, and to verify the identity of
their customers. In addition, these provisions require the federal financial institution regulatory agencies to consider
the effectiveness of a financial institution’s anti-money laundering activities when reviewing bank mergers and bank
holding company acquisitions. Failure of a financial institution to maintain and implement adequate programs to
combat money laundering and terrorist financing could have serious legal and reputational consequences for the
institution.
Office of Foreign Assets Control Regulation
The United States has imposed economic sanctions that affect transactions with designated foreign countries,
nationals, and others. These are typically known as the “OFAC” rules, based on their administration by the U.S.
Treasury Department Office of Foreign Assets Control (“OFAC”). The OFAC-administered sanctions targeting
countries take many different forms. Generally, however, they contain one or more of the following elements:
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(i) restrictions on trade with, or investment in, a sanctioned country, including prohibitions against direct or indirect
imports from, and exports to, a sanctioned country and prohibitions on “U.S. persons” engaging in financial
transactions relating to making investments in, or providing investment-related advice or assistance to, a sanctioned
country; and (ii) a blocking of assets in which the government or specially designated nationals of the sanctioned
country have an interest, by prohibiting transfers of property subject to U.S. jurisdiction (including property in the
possession or control of U.S. persons). Blocked assets (e.g., property and bank deposits) cannot be paid out,
withdrawn, set off, or transferred in any manner without a license from OFAC. Failure to comply with these sanctions
could have serious legal and reputational consequences.
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). Beginning January 2018, the
Banks are required to maintain average daily reserves equal to 3% on aggregate transaction accounts of up to
$122.3 million, plus 10% on the remainder, and the first $16.0 million of otherwise reservable balances, will both be
exempt. These reserve requirements are subject to adjustment by the FRB. The Community Bank and the Commercial
Bank currently are in compliance with the foregoing requirements.
Federal Home Loan Bank System
The Community Bank and the Commercial Bank are members of the Federal Home Loan Bank of New York
(the “FHLB-NY”). 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. At December 31, 2017, the Community Bank held $588.7 million
of FHLB-NY stock and the Commercial Bank held $15.1 million of FHLB-NY stock.
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 NYSDFS, 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.
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. Approval of the
Superintendent is required if the total of all dividends declared by the bank in a calendar year would exceed 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 NYSDFS 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 45 branches in New Jersey, 27 branches in Florida, 28 branches in Ohio, and 14 branches in Arizona, in
addition to its 111 branches in New York State.
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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, the ability to control in
any manner the election of a majority of the Company’s directors, or the power to exercise a controlling influence
over the management or policies of the Company. Under the BHCA, an existing bank holding company would be
required to obtain the FRB’s approval before acquiring more than 5% of the Company’s voting stock. See “Holding
Company Regulation” earlier in this report.
New York State Change in Control Restrictions
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.
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.
Consumer Protection Regulations
The activities of the Company’s banking subsidiaries, including their lending and deposit gathering activities,
are subject to a variety of consumer laws and regulations designed to protect consumers. These laws and regulations
mandate certain disclosure requirements, and regulate the manner in which financial institutions must deal with clients
and monitor account activity when taking deposits from, making loans to, or engaging in other types of transactions
with, such clients. Failure to comply with these laws and regulations could lead to substantial penalties, operating
restrictions, and reputational damage to the financial institution.
Applicable consumer protection laws include, but may not be limited to, the Dodd-Frank Act, Truth in Lending
Act, Truth in Savings Act, Equal Credit Opportunity Act, Electronic Funds Transfer Act, Fair Housing Act, Home
Mortgage Disclosure Act, Fair Debt Collection Practices Act, Fair Credit Reporting Act, Expedited Funds Availability
(Regulation CC), Reserve Requirements (Regulation D), Insider Transactions (Regulation O), Privacy of Consumer
Information (Regulation P), Margin Stock Loans (Regulation U), Right To Financial Privacy Act, Flood Disaster
Protection Act, Homeowners Protection Act, Servicemembers Civil Relief Act, Real Estate Settlement Procedures
Act, Telephone Consumer Protection Act, CAN-SPAM Act, Children’s Online Privacy Protection Act, and the John
Warner National Defense Authorization Act.
In addition, the Banks and their subsidiaries are subject to certain state laws and regulations designed to protect
consumers.
Consumer Financial Protection Bureau
The Banks are subject to oversight by the CFPB within the Federal Reserve System. The CFPB was established
under the Dodd-Frank Act to implement and enforce rules and regulations under certain federal consumer protection
laws with respect to the conduct of providers of certain consumer financial products and services. 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 acts and practices that are deemed to be unfair, deceptive, or abusive. 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.
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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 also may 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 certain of their affiliates.
Enterprise Risk Management
The Company’s and the Banks’ Boards of Directors are actively engaged in the process of overseeing the efforts
made by the Enterprise Risk Management (“ERM”) department to identify, measure, monitor, mitigate and report
risk. The Company has established an ERM program that reinforces a strong risk culture to support sound risk
management practices. The Board is responsible for the approval and oversight of the ERM program and framework.
Our risk management framework is designed to conform with the principles set forth in the Internal Control-Integrated
Framework (2013) established by the Committee of Sponsoring Organizations of the Treadway Commission
(“COSO”).
ERM is responsible for setting and aligning the Company’s Risk Appetite Statement with the goals and
objectives set forth in the Strategic and Capital Plans. Internal controls and ongoing monitoring processes capture and
address heightened risks that threaten the Company’s ability to achieve our goals and objectives, including the
recognition of safety and soundness concerns and consumer protection. Additionally, ERM monitors and reports on
key risk indicators against the established risk warning levels and limits, as well as elevated risks identified by the
Chief Risk Officer.
ITEM 1A. RISK FACTORS
There are various risks and uncertainties that are inherent to our business. Primary among these are (1) interest
rate risk, which arises from movements in interest rates; (2) credit risk, which arises from an obligor’s failure to meet
the terms of any contract with a bank or to otherwise perform as agreed; (3) liquidity risk, which arises from a bank’s
inability to meet its obligations when they come due without incurring unacceptable losses; (4) legal/ compliance risk,
which arises from violations of, or non-conformance with, laws, rules, regulations, prescribed practices, or ethical
standards; (5) market risk, which arises from changes in the value of portfolios of financial instruments; (6) strategic
risk, which arises from adverse business decisions or improper implementation of those business decisions;
(7) operational risk, which arises from problems with service or product delivery; and (8) reputational risk, which
arises from negative public opinion.
Following is a discussion of the material risks and uncertainties that could have a material adverse impact on
our financial condition, results of operations, and the value of our shares. The failure to properly identify, monitor,
and mitigate any of the below referenced risks, could result in increased regulatory risk and could potentially have an
adverse impact on the Company. Additional risks that are not currently known to us, or that we currently believe to
be immaterial, also may have a material effect on our financial condition and results of operations. This report is
qualified in its entirety by those risk factors.
Interest Rate Risks
Changes in interest rates could reduce our net interest income and negatively impact the value of our loans,
securities, and other assets. This could have a material adverse effect 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 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 our 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.
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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 also could have an effect on loan refinancing activity, which, in turn, would impact the
amount of prepayment income we receive on our multi-family and CRE loans. Because prepayment income is
recorded as interest income, the extent to which it increases or decreases during any given period could have a
significant impact on the level of net interest income and net income we generate during that time.
Also, 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.
Credit Risks
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.
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 the other loans we produce
for investment. Our credit risk would ordinarily be expected to increase with the growth of our multi-family and CRE
loan portfolios.
Payments on multi-family and CRE loans generally depend on the income generated by the underlying
properties which, in turn, depends on their successful operation and management. 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 losses or delinquencies.
To minimize the risks involved in our specialty finance lending and leasing, we participate in syndicated loans
that are brought to us, and equipment loans and leases that are assigned to us, by a select group of nationally recognized
sources, and generally are made to large corporate obligors, many of which are publicly traded, carry investment grade
or near-investment grade ratings, and participate in stable industries nationwide. Each of our credits is secured with a
perfected first security interest in the underlying collateral and structured as senior debt or as a non-cancelable lease.
We seek to minimize the risks involved in our other 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 such a C&I loan is substantially dependent on the degree to which his
or her business is successful. In addition, the collateral underlying other C&I 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 losses on the held-for-investment loans we produce have been comparatively limited, even during
periods of economic weakness in our markets, we cannot guarantee that this will be our experience 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 losses, but also could necessitate our
recording a provision for losses on loans. Either of these events would have an adverse impact on our net income.
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Economic weakness in the New York metropolitan region, where the majority of the properties collateralizing our
multi-family, CRE, and ADC loans, and the majority of the businesses collateralizing our other C&I 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 multi-family, CRE, and ADC loans we originate for investment,
and the businesses of the customers to whom we make our other 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, including 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.
Furthermore, economic or market turmoil could occur in the near or long term. This could negatively affect our
business, our financial condition, and our results of operations, as well as our ability to maintain or increase the level
of cash dividends we currently pay to our shareholders.
Our allowance for losses on 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 loans. The process of determining whether or not this allowance is
sufficient to cover potential loan losses is based on the methodology described in detail under “Critical Accounting
Policies” in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in
this report.
If the judgments and assumptions we make with regard to the allowance are incorrect, our allowance for losses
on such loans might not be sufficient, and additional 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, growth in our portfolio of loans held for investment may require us to increase the allowance for
losses on such loans by making additional provisions, which would reduce our net income. Furthermore, bank
regulators have the authority to require us to make provisions for loan losses or otherwise recognize 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 loan loss allowance or in loan charge-offs as required by such
regulatory authorities could have a material adverse effect on our financial condition and results of operations.
Liquidity Risks
Failure to maintain an adequate level of liquidity could result in an inability to fulfill our financial obligations and
also could subject us to material reputational and compliance 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 the retail and institutional deposits we gather or acquire in connection with
acquisitions, and the brokered deposits we accept; borrowed funds, primarily in the form of wholesale borrowings
from the FHLB-NY and various Wall Street brokerage firms; cash flows generated through the repayment and sale of
loans; and 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 to generate additional liquidity.
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. The withdrawal of more deposits than we anticipate could have an adverse impact on our profitability as this
source of funding, if not replaced by similar deposit funding, would need to be replaced with wholesale funding, the
sale of interest-earning assets, or a combination of the two. The replacement of deposit funding with wholesale funding
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could cause our overall cost of funds to increase, which would reduce our net interest income and results of operations.
A decline in interest-earning assets would also lower our net interest income and results of operations.
In addition, large-scale withdrawals of brokered or institutional deposits could require us to pay significantly
higher interest rates on our retail deposits or on other wholesale funding sources, which would have an adverse impact
on our net interest income and net income. Furthermore, changes to the FHLB-NY’s underwriting guidelines for
wholesale borrowings or lending policies may limit or restrict our ability to borrow, and therefore could have a
significant adverse impact on our liquidity. 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.
A downgrade of the credit ratings of the Company and the Banks could also adversely affect our access to
liquidity and capital, and could significantly increase our cost of funds, trigger additional collateral or funding
requirements, and decrease the number of investors and counterparties willing to lend to us or to purchase our
securities. This could affect our growth, profitability, and financial condition, including our liquidity.
Inability to fulfill minimum liquidity requirements 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.
On September 3, 2014, the FRB and other banking regulators adopted final rules implementing a U.S. version
of the Basel Committee’s Liquidity Coverage Ratio (the “LCR”) requirement. The LCR requirement, including the
modified version applicable to bank holding companies with $50 billion or more in total consolidated assets that have
not opted to use the “advanced approaches” risk-based capital rule, requires a banking organization to maintain an
amount of unencumbered “high-quality liquid assets” (“HQLAs”) to be at least equal to the amount of its total
projected net cash outflows over a hypothetical 30-day stress period. Under the rule, only specific classes of assets
qualify as HQLAs (the numerator of the LCR), with riskier classes of assets subject to haircuts and caps.
The total net cash outflow amount (the denominator of the LCR) is determined under the rule by applying
outflow and inflow rates that reflect certain standardized assumptions against the balance of the banking organization’s
funding sources, obligations, transactions, and assets over the hypothetical 30-day stress period. Inflows that can be
included to offset outflows are limited to 75% of outflows (which effectively means that banking organizations must
hold HQLAs equal to 25% of outflows even if outflows perfectly match inflows over the stress period).
On November 20, 2015, the FRB issued a proposed rule that would provide companies that become subject to
the modified LCR rule after the rule’s effective date, a full year to comply with the rule. The proposed rule was
finalized on December 19, 2016.
The modified LCR is a minimum requirement, and the FRB can impose additional liquidity requirements as a
supervisory matter.
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.
Dividends on the Series A Preferred Stock are discretionary and noncumulative, and may not be paid if such
payment will result in our failure to comply with all applicable laws and regulations, or if we fail to obtain the non-
objection of the FRB with respect to the declaration of dividends.
Dividends on the Series A Preferred Stock are discretionary and noncumulative. If our Board of Directors (or
any duly authorized committee of the Board) does not authorize and declare a dividend on the Series A Preferred
Stock for any dividend period, holders of the depositary shares will not be entitled to receive any dividend for that
dividend period, and the unpaid dividend will cease to accrue and be payable. We have no obligation to pay dividends
22
accrued for a dividend period after the dividend payment date for that period if our Board of Directors (or any duly
authorized committee thereof) has not declared a dividend before the related dividend payment date, whether or not
dividends on the Series A Preferred Stock or any other series of our preferred stock or our common stock are declared
for any future dividend period. Additionally, under the FRB’s capital rules, dividends on the Series A Preferred Stock
may only be paid out of our net income, retained earnings, or surplus related to other additional tier 1 capital
instruments.
In addition, throughout 2017, the Company was required to receive a non-objection from the FRB to pay cash
dividends on its outstanding common stock, and the FRB has advised the Company to continue the exchange of written
documentation to obtain their non-objection to the declaration of any dividends, including any dividends on the Series
A Preferred Stock. There can be no guarantee that the FRB will approve any requested dividends on the Series A
Preferred Stock. Further, if payment of dividends on Series A Preferred Stock for any dividend period would cause
the Company to fail to comply with any applicable law or regulation, or any agreement we may enter into with our
regulators from time to time, we will not declare or pay a dividend for such dividend period. In such a case, holders
of the depositary shares will not be entitled to receive any dividend for that dividend period, and the unpaid dividend
will cease to accrue and be payable.
In addition, if the Company were to become a SIFI, as defined in the current regulations, we would become
subject to regulations under the Dodd-Frank Act that may limit the amount of capital that can be distributed by the
Company from time to time. These would include a requirement to submit an annual capital plan to the FRB describing
proposed capital distributions and obtaining a non-objection from the FRB. At December 31, 2017, the four-quarter
average of our total consolidated assets was $48.7 billion. Based on the current regulations, the Company will become
a SIFI if our total consolidated assets average, meets or exceeds $50 billion over four consecutive quarters.
Legal/Compliance Risks
Inability to fulfill minimum capital requirements 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. Depending on general economic conditions, changes in our capital position could have a materially adverse
impact on our financial condition and risk profile, and also could limit our ability to grow through acquisitions or
otherwise. Compliance with regulatory 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
expand.
Furthermore, it is possible that future regulatory changes could result in more stringent capital or liquidity
requirements, including increases in the levels of regulatory capital we are required to maintain and changes in the
way capital or liquidity is measured for regulatory purposes, either of which could adversely affect our business and
our ability to expand. For example, federal banking regulations adopted under Basel III standards require bank holding
companies and banks to undertake significant activities to demonstrate compliance with higher capital requirements.
Any additional requirements to increase our capital ratios or liquidity could necessitate our liquidating certain assets,
perhaps on terms that are unfavorable to us or that are contrary to our business plans. In addition, such requirements
could also compel us to issue additional securities, thus diluting the value of our common stock.
In addition, failure to meet 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.
Should the average of our total consolidated assets over four consecutive quarters pass the current SIFI threshold
of $50 billion, we would expect to be subject to stricter prudential standards required by the Dodd-Frank Act for large
bank holding companies.
Pursuant to the current requirements of the Dodd-Frank Act, a bank holding company whose total consolidated
assets average more than $50 billion over the four most recent quarters is determined to be a SIFI, and therefore is
subject to stricter prudential standards. In addition to capital and liquidity requirements, these standards primarily
include risk-management requirements, dividend limits, and early remediation regimes.
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On December 18, 2017, the Senate Banking Committee passed a bipartisan regulatory reform bill, the Economic
Growth, Regulatory Relief, and Consumer Protection Act (S.2155). Among many other provisions, the bill would
raise the designation as a SIFI to $250 billion in assets from $50 billion, end company run stress tests for banks under
$250 billion in assets, and simplify capital calculations for community banks. There is no guarantee that the bill will
pass or that it will pass in its current form.
Our results of operations could be materially affected by further changes in bank regulation, or by our ability 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 NYSDFS, the
chartering authority for both the Community Bank and the Commercial Bank; (2) the FDIC, as the insurer of the
Banks’ deposits; (3) the FRB-NY, 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 are intended primarily for the protection of the Deposit Insurance Fund (“DIF”), the
banking system in general, and bank customers, rather than 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. Changes in such
regulation and supervision, or changes in regulation or enforcement by such authorities, whether in the form of policy,
regulations, legislation, rules, orders, enforcement actions, ratings, or decisions, could have a material impact on the
Company, our subsidiary banks and other affiliates, and our operations. In addition, failure of the Company or the
Banks to comply with such regulations could have a material adverse effect on our earnings and capital.
See “Regulation and Supervision” in Part I, Item 1, “Business” earlier in this filing for a detailed description of
the federal, state, and local regulations to which the Company and the Banks are subject.
Our enterprise risk management framework may not be effective in mitigating the risks to which we are subject,
based upon the size, scope, and complexity of the Company.
As a financial institution, we are subject to a number of risks, including interest rate, credit, liquidity,
legal/compliance, market, strategic, operational, and reputational. 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 diverse 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, economic and market 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. Furthermore, an ineffective ERM framework, as well as other risk factors,
could result in a material increase in our FDIC insurance premiums.
Market Risks
A decline in economic conditions could adversely affect the value of the loans we originate and the securities in
which we invest.
Although we take steps to reduce our exposure to the risks that stem from adverse changes in economic
conditions, such changes nevertheless could adversely impact the value of the loans we originate, the securities we
invest in, and our loan portfolios.
Declines in real estate values and home sales, and an increase in the financial stress on borrowers stemming
from high unemployment or other adverse economic conditions, could negatively affect our borrowers and, in turn,
the repayment of the loans in our portfolio. 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’
24
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. Furthermore, declines in the value of our investment securities
could result in our having to record losses based on the other-than-temporary impairment of securities, which would
reduce our earnings and also could reduce our capital. In addition, continued economic weakness could reduce the
demand for our products and services, which would adversely impact our liquidity and the revenues we produce.
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 investor
sentiment regarding our operations or business prospects. Among other factors, these risks may be affected by:
• Operating results that vary from the expectations of our management or of securities analysts and investors;
• Developments in our business or in the financial services sector generally;
• Regulatory or legislative changes affecting our industry generally or our business and operations;
• Operating and securities price performance of companies that investors consider to be comparable to us;
• Changes in estimates or recommendations by securities analysts or rating agencies;
• Announcements of strategic developments, acquisitions, dispositions, financings, and other material events
by us or our competitors;
• 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.
•
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.
Strategic Risks
Extensive competition for loans and deposits could adversely affect our ability to expand our business, as well as
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 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, extended hours of service, and access through
alternative delivery channels; 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
by addressing their financial needs. External factors that may impact our ability to compete include, among others,
the entry of new lenders and depository institutions in our current markets and, with regard to lending, an increased
focus on multi-family and CRE lending by existing competitors.
Limitations on our ability to grow our portfolios of multi-family and CRE loans could adversely affect our ability
to generate interest income, as well our financial condition and results of operations, perhaps materially.
Although we also originate ADC and C&I loans, and invest in securities, our portfolios of multi-family and
CRE loans represent the largest portion of our asset mix (92.2% of total loans as of December 31, 2017). Our position
in these markets has been instrumental to our production of solid earnings and our consistent record of exceptional
asset quality. In view of the heightened regulatory focus on CRE concentration, we monitor the ratio of our multi-
family, CRE, and ADC loans (as defined in the CRE Guidance) to our total risk-based capital to ensure that it remains
within the 850% limit we have agreed to with our regulators. Were the ratio to exceed that limit, we would act to
rectify it, either by reducing our multi-family, CRE, and ADC loan production and/or by raising additional capital.
Either of these actions could have an adverse impact on our net interest income and our earnings capacity, as would
any further regulatory limitations on our CRE lending. (See the discussion on CRE Guidance that appears in “FDIC
Regulations – Real Estate Lending Standards” under “Regulation and Supervision” earlier in this report.)
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The inability to engage in merger transactions, or to realize the anticipated benefits of acquisitions in which we
might engage, could adversely affect our ability to compete with other financial institutions and weaken our
financial performance.
Mergers and acquisitions have contributed significantly to our growth and it is possible that we will look to
acquire other financial institutions, financial service providers, or branches of banks in the future.
Our ability to engage in future mergers and acquisitions would depend on our ability to identify suitable merger
partners and acquisition opportunities, our ability to finance and complete negotiated transactions at acceptable prices
and on acceptable terms, and our ability to obtain the necessary shareholder and regulatory approvals.
If we are unable to engage in or complete a desired acquisition or merger transaction, our financial condition
and results of operations could be adversely impacted. 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 our net income. Furthermore, the
absence of acquisitions could impact our ability to fulfill our loan demand.
Mergers and acquisitions involve a number of risks and challenges, including:
• Our ability to successfully integrate the branches and operations we acquire, and to adopt appropriate
internal controls and regulatory functions relating to such activities;
• Our ability to limit the outflow of deposits held by customers in acquired branches, and to successfully
retain and manage any loans we acquire;
• Our ability to attract new deposits, and to generate new interest-earning assets, in geographic areas we have
not previously served;
• Our success in deploying any cash received in a transaction into assets bearing sufficiently high yields
without incurring unacceptable credit or interest rate risk;
• Our ability to control the incremental non-interest expense from acquired operations;
• Our ability to retain and attract the appropriate personnel to staff acquired branches and conduct any
acquired operations;
• Our ability to generate acceptable levels of net interest income and non-interest income, including fee
income, from acquired operations;
• The diversion of management’s attention from existing operations;
• Our ability to address an increase in working capital requirements; and
• Limitations on our ability to successfully reposition the post-merger balance sheet when deemed
appropriate.
In addition, mergers and acquisitions can lead to uncertainties about the future on the part of customers and
employees. Such uncertainties could cause customers and others to consider changing their existing business
relationships with the company to be acquired, and could cause its employees to accept positions with other companies
before the merger occurs. As a result, the ability of a company to attract and retain customers, and to attract, retain,
and motivate key personnel, prior to a merger’s completion could be impaired.
Furthermore, no assurance can be given that acquired operations 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 would be 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.
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. 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.
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The inability to receive dividends from our subsidiary banks could have a material adverse effect on our financial
condition or 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 Parent Company, we might not be able to service our debt, pay our obligations, or pay
dividends on our common stock.
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. Throughout 2017, the
Company was required to receive a non-objection from the FRB to pay cash dividends on its outstanding common
stock, and the FRB has advised the Company to continue the exchange of written documentation to obtain their non-
objection to the declaration of dividends. While we pay our quarterly cash dividend in compliance with current
regulations, such regulations could change in the future. In addition, if the Company were to become a SIFI institution,
as defined in the current regulations, we would become subject to regulations under the Dodd-Frank Act that limit the
amount of capital that can be distributed by the Company from time to time. Any reduction or elimination of our
common stock dividend in the future could adversely affect the market price of our common stock.
Operational Risks
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.
In accordance with the Dodd-Frank Act, banking organizations with $10 billion to $50 billion in assets currently
are required to perform annual capital stress tests and to report the results of such tests. The results of our capital stress
tests and the application of certain capital rules may result in constraints being placed on our capital distributions or
require that we increase our regulatory capital under certain circumstances.
In addition, 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. Additionally, failure by the Company to maintain compliance with strict capital, liquidity,
and other stress test requirements under banking regulations could subject us to regulatory sanctions, including
limitations on our ability to pay dividends.
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.
Communication and information systems are essential to the conduct of our business, as we use such systems,
and those maintained and provided to us by third party service providers, to manage our customer relationships, our
general ledger, our deposits, and our loans. In addition, 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 an impact on information security. With the rise and permeation of online and mobile
banking, the financial services industry in particular faces substantial cybersecurity risk due to the type of sensitive
27
information provided by customers. Our systems and those of our third-party service providers and customers are
under constant threat, and it is possible that we or they could experience a significant event in the future that could
adversely affect our business or operations.
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 that 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.
While we diligently assess applicable regulatory and legislative developments affecting our business, laws and regulations
relating to cybersecurity have been frequently changing, imposing new requirements on us, such as the recently adopted New York
State Department of Financial Services’ Cybersecurity Requirements for Financial Services Companies regulation. In light of these
conditions, we face the potential for additional regulatory scrutiny that will lead to increasing compliance and technology expenses
and, in some cases, possible limitations on the achievement of our plans for growth and other strategic objectives.
Furthermore, we may be required to expend significant additional resources to modify our protective measures or investigate
and remediate vulnerabilities or other exposures arising from operational and security risks. Additional expenditures may be
required for third-party expert consultants or outside counsel.
We also may be subject to litigation and financial losses that either are 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.
We maintain disclosure controls and procedures to ensure we will timely and sufficiently notify our investors of material
cybersecurity risks and incidents, including the associated financial, legal, or reputational consequence of such an event, as well as
reviewing and updating any prior disclosures relating to the risk or event.
While we have established information security policies and procedures, including an Incident Response Plan, to prevent or
limit the impact of systems failures and interruptions, we may not be able to anticipate all possible security breaches that could
affect our systems or information and there can be no assurance that such events will not occur or will be adequately prevented or
mitigated if they do.
We maintain policies and procedures to prevent directors, certain officers, and corporate insiders from trading stock after
being made aware of a material cybersecurity incident and to control the distribution of information about cybersecurity events that
could constitute material information to the Company; however, we cannot be certain that a corporate insider who becomes aware
of a Company material cybersecurity incident does not undertake to buy or sell Company stock before information about the
incident becomes publicly available.
The Company and the Banks rely on third parties to perform certain key business functions, which may expose us
to further operational risk.
We outsource certain key aspects of our data processing to certain third-party providers. While we have selected
these third-party providers carefully, we cannot control their actions. Our ability to deliver products and services to
our customers, to adequately process and account for our customers’ transactions, or otherwise conduct our business
could be adversely impacted by any disruption in the services provided by these third parties; their failure to handle
current or higher volumes of usage; or any difficulties we may encounter in communicating with them. Replacing
these third-party providers also could entail significant delay and expense.
Our third-party providers may be vulnerable to unauthorized access, computer viruses, phishing schemes, and
other security breaches. Threats to information security also exist in the processing of customer information through
various other third-party providers and their personnel. We may be required to expend significant additional resources
to protect against the threat of such security breaches and computer viruses, or to alleviate problems caused by such
security breaches or viruses. To the extent that the activities of our third-party providers or the activities of our
customers involve the storage and transmission of confidential information, security breaches and viruses could
expose us to claims, regulatory scrutiny, litigation, and other possible liabilities.
28
In addition, the Company may not be adequately insured against all types of losses resulting from third-party
failures, and our insurance coverage may be inadequate to cover all losses resulting from systems failures or other
disruptions to our banking services.
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 have
greater resources to invest in technology than we do and may be better equipped to market new technology-driven
products and services.
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, state, and local
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, and our net income and earnings per share could be reduced if a federal, state, or
local authority were to assess additional taxes that have not been provided for in our consolidated financial statements.
In addition, there can be no assurance that we will achieve our anticipated effective tax rate. Unanticipated changes in
tax laws or related regulatory or judicial guidance, or an audit assessment that denies previously recognized tax
benefits, could result in our recording tax expenses that materially reduce our net income.
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. Furthermore, our ability to attract and retain personnel with the skills and
knowledge to support our business may require that we offer additional compensation and benefits that would reduce
our earnings.
Many aspects of our operations are dependent upon the soundness of other financial intermediaries, and thus
could expose us to systemic risk.
The soundness of many financial institutions may be closely interrelated as a result of relationships between
them involving credit, trading, execution of transactions, and the like. As a result, concerns about, or a default or
threatened default by, one institution could lead to significant market-wide liquidity and credit problems, losses, or
defaults by other institutions. As such “systemic risk” may adversely affect the financial intermediaries with which
we interact on a daily basis (such as clearing agencies, clearing houses, banks, and securities firms and exchanges),
we could be adversely impacted as well.
Reputational Risk
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 by
damage to our reputation resulting from various 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 identify and 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; consumer protection, fair lending, and privacy issues; properly
29
maintaining customer and associated personal information; record keeping; protecting against money laundering; sales
and trading practices; and ethical issues.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2.
PROPERTIES
We own certain of our branch offices, as well as our headquarters on Long Island and certain other back-office
buildings in New York, Ohio, and Florida. We also utilize other branch and back-office locations in those states, and
in New Jersey and Arizona, under various lease and license agreements that expire at various times. (See Note 10,
“Commitments and Contingencies: Lease Commitments” in Item 8, “Financial Statements and Supplementary Data.”)
We believe that our facilities are adequate to meet our present and immediately foreseeable needs.
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.
30
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. trades on the New York Stock Exchange (the
“NYSE”) under the symbol “NYCB.”
At December 31, 2017, the number of outstanding shares was 488,490,352 and the number of registered owners
was approximately 11,868. 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 2017
and 2016:
Dividends
Declared per
Common Share
$0.17
0.17
0.17
0.17
$0.17
0.17
0.17
0.17
Market Price
High
Low
Close
$16.26
14.12
13.48
13.76
$16.17
15.97
15.49
17.67
$13.67
12.61
11.67
11.94
$14.32
14.25
14.05
13.74
$13.97
13.13
12.89
13.02
$15.90
14.99
14.23
15.91
2017
1st Quarter
2nd Quarter
3rd Quarter
4th Quarter
2016
1st Quarter
2nd Quarter
3rd Quarter
4th Quarter
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 16, 2017, 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.
31
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 compares the cumulative total return on the Company’s stock in the five years ended
December 31, 2017 with the cumulative total returns on a broad market index (the S&P Mid-Cap 400 Index) and a
peer group index (the SNL U.S. Bank and Thrift Index) during the same time. 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 SNL U.S. Bank
and Thrift Index currently is comprised of 395 bank and thrift institutions, including the Company. S&P Global Market
Intelligence provided us with the data for both indices.
The cumulative total returns are based on the assumption that $100.00 was invested in each of the three
investments on December 31, 2012 and that all dividends paid since that date were reinvested. Such returns are based
on historical results and are not intended to suggest future performance.
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 DECEMBER 31, 2012
ASSUMES DIVIDEND REINVESTED
FISCAL YEAR ENDING DECEMBER 31, 2017
12/31/2012
12/31/2013
12/31/2014
12/31/2015
12/31/2016
12/31/2017
New York Community Bancorp, Inc.
$100.00
S&P Mid-Cap 400 Index
SNL U.S. Bank and Thrift Index
$100.00
$100.00
$137.85
$133.50
$136.92
32
$139.58
$146.54
$152.85
$151.05
$143.35
$155.94
$154.30
$132.87
$173.08
$201.20
$196.86
$231.49
Share Repurchases
Shares Repurchased Pursuant to the Company’s Stock-Based Incentive Plans
Participants in the Company’s stock-based incentive plans may have shares of common stock withheld to fulfill
the income tax obligations that arise in connection with their exercise of stock options and the vesting of their stock
awards. Shares that are withheld for this purpose are repurchased pursuant to the terms of the applicable stock-based
incentive plan, rather than pursuant to the share repurchase program authorized by the Board of Directors described
below.
During the twelve months ended December 31, 2017, the Company allocated $18.5 million toward the
repurchase of shares of its common stock, including $7.5 million in the fourth quarter, as indicated in the following
table:
(dollars in thousands, except per share data)
Period
First Quarter 2017
Second Quarter 2017
Third Quarter 2017
Fourth Quarter 2017:
October
November
December
Total Fourth Quarter 2017
2017 Total
Total Shares of Common
Stock Repurchased
648,793
37,414
26,670
Average Price Paid
per Common Share
$15.62
13.43
12.89
7,399
2,686
561,411
571,496
1,284,373
12.88
12.86
13.10
13.10
$14.37
Total
Allocation
$10,132
502
344
95
35
7,355
7,485
$18,463
Shares Repurchased Pursuant to the Board of Directors’ Share Repurchase Authorization
On April 20, 2004, the Board of Directors authorized the repurchase of up to five million shares of the
Company’s common stock. Of this amount, 1,659,816 shares were still available for repurchase at December 31, 2017.
Under said authorization, shares may be repurchased on the open market or in privately negotiated transactions. No
shares have been repurchased under this authorization since August 2006.
Shares that are repurchased pursuant to the Board of Directors’ authorization, and those that are repurchased
pursuant to the Company’s stock-based incentive plans, are held in our Treasury account and may be used for various
corporate purposes, including, but not limited to, merger transactions and the vesting of restricted stock awards.
33
ITEM 6.
SELECTED FINANCIAL DATA
(dollars in thousands, except share data)
EARNINGS SUMMARY:
Net interest income (1)
Provision for (recovery of) losses on non-covered loans
(Recovery of) provision for losses on covered loans
Non-interest income
Non-interest expense:
Operating expenses (2)
Amortization of core deposit intangibles
Debt repositioning charge
Merger-related expenses
Total non-interest expense
Income tax expense (benefit)
Net income (loss) (3)
Preferred stock dividends
Net income available to common shareholders
Basic earnings (loss) per common share (3)
Diluted earnings (loss) per common share (3)
Dividends paid per common share
SELECTED RATIOS:
Return on average assets (3)
Return on average common stockholders’ equity (3)
Average common stockholders’ equity to average assets
Operating expenses to average assets (2)
Efficiency ratio (1)(2)
Net interest rate spread (1)
Net interest margin (1)
Common 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
Securities
Deposits
Borrowed funds
Common stockholders’ equity
Common shares outstanding
Book value per common share
Common stockholders’ equity to total assets
ASSET QUALITY RATIOS (excluding covered assets and
non-covered purchased credit-impaired loans):
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 (recoveries) to average loans (4)
ASSET QUALITY RATIOS (including covered assets and
non-covered purchased credit-impaired loans) (5)
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
2017
At or For the Years Ended December 31,
2015
2014
2016
2013
$ 1,130,003
60,943
(23,701 )
216,880
$ 1,287,382
11,874
(7,694 )
$ 408,075
(3,334 )
(11,670 )
210,763
$ 1,140,353
--
(18,587 )
201,593
$ 1,166,616
18,000
12,758
218,830
145,572
638,109
2,391
--
11,146
651,646
281,727
495,401
--
495,401
$1.01
1.01
0.68
641,218
208
--
--
641,426
202,014
466,201
24,621
441,580
$0.90
0.90
0.68
615,600
5,344
141,209
3,702
765,855
(84,857 )
(47,156 )
--
(47,156 )
$(0.11 )
(0.11 )
1.00
579,170
8,297
--
--
587,467
287,669
485,397
--
485,397
$1.09
1.09
1.00
591,778
15,784
--
--
607,562
271,579
475,547
--
475,547
$1.08
1.08
1.00
0.96 %
7.12
12.76
1.32
47.61
2.47
2.59
75.56
1.00 %
8.19
12.28
1.29
44.53
2.85
2.93
67.33
(0.10 )%
(0.81 )
11.90
1.26
99.48
0.69
0.94
--
1.01 %
8.41
12.01
1.21
43.16
2.57
2.67
91.74
1.07 %
8.46
12.66
1.33
42.71
2.90
3.01
92.59
$49,124,195
38,265,183
158,046
--
3,531,427
29,102,163
12,913,679
6,292,536
488,490,352
$12.88
$48,926,555
39,308,016
158,290
23,701
3,817,057
28,887,903
13,673,379
6,123,991
487,056,676
$12.57
$50,317,796
38,011,995
147,124
31,395
6,173,645
28,426,758
15,748,405
5,934,696
484,943,308
$12.24
$48,559,217
35,647,639
139,857
45,481
7,096,450
28,328,734
14,226,487
5,781,815
442,587,190
$13.06
$46,688,287
32,727,507
141,946
64,069
7,951,020
25,660,992
15,105,002
5,735,662
440,809,365
$13.01
12.81 %
12.52 %
11.79 %
11.91 %
12.29 %
0.19
%
0.15
%
0.13 %
0.23 %
0.35 %
0.18
0.14
0.13
0.30
0.40
214.50
277.19
310.08
181.75
137.10
0.41
0.16
0.42
0.00
0.41
(0.02 )
0.42
0.01
0.48
0.05
0.19 %
0.18
214.50
0.41
0.48 %
0.44
96.39
0.47
0.49 %
0.45
96.51
0.47
0.66 %
0.68
78.92
0.52
0.97 %
0.91
65.40
0.63
(1) The 2015 amount reflects the impact of a $773.8 million debt repositioning charge recorded as interest expense in the fourth
quarter of the year.
(2) The 2015 amount includes state and local non-income taxes of $5.4 million resulting from the debt repositioning charge.
(3) The 2015 amount reflects the $546.8 million after-tax impact of the debt repositioning charge recorded as interest expense
and non-interest expense, combined.
(4) Average loans include covered loans.
(5) At December 31, 2017, the Company had no covered assets.
34
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
New York Community Bancorp, Inc. is the holding company for New York Community Bank, with 225
branches in Metro New York, New Jersey, Ohio, Florida, and Arizona, and New York Commercial Bank, with 30
branches in Metro New York. At December 31, 2017, we had total assets of $49.1 billion, including total loans of
$38.4 billion, total deposits of $29.1 billion, and total stockholders’ equity of $6.8 billion.
Chartered in the State of New York, the Community Bank and the Commercial Bank are subject to regulation
by the Federal Deposit Insurance Corporation (the “FDIC”), the Consumer Financial Protection Bureau, and the New
York State Department of Financial Services (the “NYSDFS”). In addition, the holding company is subject to
regulation by the Board of Governors of the Federal Reserve System (the “FRB”), the U.S. Securities and Exchange
Commission (the “SEC”), and to the requirements of the New York Stock Exchange, where shares of our common
stock are traded under the symbol “NYCB.”
As a publicly traded company, our mission is to provide our shareholders with a solid return on their investment
by producing a strong financial performance, maintaining a solid capital position, and engaging in corporate strategies
that enhance the value of their shares. For the twelve months ended December 31, 2017, the Company reported net
income of $466.2 million compared to $495.4 million for the twelve months ended December 31, 2016, down 6%.
Net income available to common shareholders totaled $441.6 million, down 11% from the $495.4 million reported for
the twelve months ended December 31, 2016. Diluted earnings per common share were $0.90 for the twelve months
ended December 31, 2017, as compared to $1.01 per diluted common share for the twelve months ended December 31,
2016, down 11%.
Additionally, we maintained our status as a well-capitalized institution with regulatory capital ratios that rose
year-over-year. We also engaged in strategies that were consistent with our business model, as further described
below:
We Resumed Our Balance Sheet Growth
After not growing our balance sheet over the past three years, the Company resumed its organic balance sheet
strategy in the fourth quarter of 2017. Compared to the third quarter of 2017, total assets grew at an annualized rate
of 5.5% to $49.1 billion. This growth was achieved through a combination of securities and loan growth. Total
securities increased by $500.4 million or 16.5% (not annualized) to $3.5 billion, while total non-covered loans held
for investment increased by $881.8 million, or 9.4% annualized. At the same time, we significantly curtailed the
practice of selling loans to other financial institutions. While we recorded strong growth to end the year, we still
managed to stay below the Systemically Important Financial Institution (“SIFI”) threshold of $50 billion. For the four
quarters ended December 31, 2017, the Company’s total consolidated assets averaged $48.7 billion.
We Maintained a Strong Presence in our Multi-Family Lending Niche
In 2017, we originated $8.9 billion of loans for investment, including $5.4 billion of our core multi-family
product, $1.0 billion of commercial real estate (“CRE”) loans, and $1.8 billion of specialty finance loans. The increase
occurred in the latter half of the year, with most of it arising in the fourth quarter of 2017, as total originations of held-
for-investment loans increased 52% as compared to the fourth quarter of 2016. This includes origination growth of
76% for our multi-family loans, 21% for our CRE loans, and 53% for our specialty finance loans.
Strategic Asset Sale
On June 27, 2017, the Company announced that it had entered into an agreement to sell its mortgage banking
business, which was acquired as part of its 2009 FDIC-assisted acquisition of AmTrust Bank (“AmTrust”), to Freedom
Mortgage Corporation. This sale included both our origination and servicing platforms, as well as our mortgage
servicing rights portfolio. Additionally, the Company received approval from the FDIC to sell the assets covered under
our Loss Share Agreements (“LSA”) and entered into an agreement to sell the majority of our one-to-four family
residential mortgage-related assets, including those covered under the LSA, to an affiliate of Cerberus Capital
Management, L.P. (“Cerberus”). Both transactions were completed during the third quarter.
35
We Maintained our Record of Exceptional Asset Quality
Non-performing non-covered assets represented $90.1 million, or 0.18%, of total non-covered assets at the end
of this December, and non-performing non-covered loans represented $73.7 million, or 0.19%, of total non-covered
loans. While our level of non-performing assets was modestly higher than the year-earlier level, the increase stemmed
from the transfer to non-accrual status of certain taxi medallion-related loans. The performance of our multi-family
and CRE loans, which are our principal assets, continued to be exceptional over the course of the year.
Also reflecting the quality of our assets was the level of net charge-offs we recorded in the twelve months ended
December 31, 2017. Net charge-offs represented $61.2 million, or 0.16% of average loans, and largely consisted of
taxi medallion-related loans.
External Factors
The following is a discussion of certain external factors that tend to influence our financial performance and the
strategic actions we take.
Interest Rates
Among the external factors that tend to influence our performance, the interest rate environment is key. Just as
short-term interest rates affect the cost of our deposits and that of the funds we borrow, market interest rates affect the
yields on the loans we produce for investment and the securities in which we invest.
As further discussed under “Loans Held for Investment” later on in this discussion, the interest rates on our
multi-family loans and CRE credits generally are based on the five-year Constant Maturity Treasury Rate (the
“CMT”). The following table summarizes the high, low, and average five- and ten-year CMT rates in 2017 and 2016:
Constant Maturity Treasury Rates
Five-Year
Ten-Year
2017
2016
2.26 % 2.10 %
1.63
1.91
0.94
1.33
2017
2016
2.62 % 2.60 %
2.05
2.33
1.37
1.84
High
Low
Average
Because the multi-family and CRE loans we produce generate income when they prepay (which is recorded as
interest income), the impact of repayment activity can be especially meaningful. In 2017, prepayment income from
loans contributed $47.0 million to interest income; in the prior year, the contribution was $60.9 million.
Economic Indicators
While we attribute our asset quality to the nature of the loans we produce and our conservative underwriting
standards, the quality of our assets can also be impacted by economic conditions in our local markets and throughout
the United States. The information that follows consists of recent economic data that we consider to be germane to
our performance and the markets we serve.
The following table presents the generally downward trend in unemployment rates, as reported by the U.S.
Department of Labor, both nationally and in the various markets that comprise our footprint, for the months indicated:
December
2017
2016
Unemployment rate:
United States
New York City
Arizona
Florida
New Jersey
New York
Ohio
3.9 %
3.9
4.6
3.7
4.1
4.4
4.5
4.5 %
4.4
4.7
4.7
4.2
4.5
4.8
36
The Consumer Price Index (the “CPI”) measures the average change over time in the prices paid by urban
consumers for a market basket of consumer goods and services. The following table indicates the change in the CPI
for the twelve months ended at each of the indicated dates:
Change in prices:
For the Twelve Months Ended
December
2017
2.1%
2016
2.1%
Economic activity also is indicated by the Consumer Confidence Index®, which moved up to 122.1 in
December 2017 from 113.7 in December 2016. An index level of 90 or more is considered indicative of a strong
economy.
The residential rental vacancy rate in New York, as reported by the U.S. Department of Commerce, and the
office vacancy rate in Manhattan, as reported by a leading commercial real estate broker (Jones Lang LaSalle), are
important in view of the fact that 63.6% of our multi-family loans and 69.3% of our CRE loans are secured by
properties in New York City, with Manhattan accounting for 26.4% and 50.7% of our multi-family and CRE loans,
respectively.
As reflected in the following table, the residential rental vacancy rate in New York and the office vacancy rate
in Manhattan were both lower in the three months ended December 31, 2017 than they were in the three months ended
December 31, 2016:
For the Three Months Ended
December 31,
2017
4.9 %
10.1
2016
5.4 %
10.4
Residential rental vacancy rate in New York
Manhattan office vacancy rate
Recent Events
Dividend Declaration
On January 30, 2018, the Board of Directors declared a quarterly cash dividend on the Company’s common
stock of $0.17 per share, payable on February 27, 2018 to common shareholders of record at the close of business on
February 13, 2018.
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 determination of the amount, if any, of goodwill impairment; and the determination of the valuation
allowance, if any, for deferred tax assets.
The judgments used by management in applying these critical accounting policies may be influenced by adverse
changes in the economic environment, which may result in changes to future financial results.
Allowances for Loan Losses
Allowance for Losses on Non-Covered Loans
The allowance for losses on non-covered loans represents our estimate of probable and estimable losses inherent
in the non-covered loan portfolio as of the date of the balance sheet. Losses on non-covered loans are charged against,
and recoveries of losses on non-covered loans are credited back to, the allowance for losses on non-covered loans.
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.
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In addition, except as otherwise noted in the following discussion, the process for establishing the allowance for losses
on non-covered loans is largely the same for each of the Community Bank and the Commercial Bank.
The methodology used for the allocation of the allowance for non-covered loan losses at December 31, 2017
and December 31, 2016 was generally comparable, whereby the Community Bank and the Commercial Bank
segregated their loss factors (used for both criticized and non-criticized loans) into a component that was primarily
based on historical loss rates and a component that was primarily based on other qualitative factors that are probable
to affect loan collectability. In determining the respective allowances for non-covered loan losses, management
considers the Community Bank’s and the Commercial Bank’s current business strategies and credit processes,
including compliance with applicable regulatory guidelines and with guidelines approved by the respective Boards of
Directors with regard to credit limitations, loan approvals, underwriting criteria, and loan workout procedures.
The allowance for losses on non-covered loans is established based on management’s evaluation of incurred
losses in the portfolio in accordance with U.S. generally accepted accounting principles (“GAAP”), and is comprised
of both specific valuation allowances and general valuation allowances.
Specific valuation allowances are established based on management’s analyses of individual loans that are
considered impaired. If a non-covered loan is deemed to be impaired, management measures the extent of the
impairment and establishes a specific valuation allowance for that amount. A non-covered loan is classified as
“impaired” when, based on current information and/or events, it is probable that we will be unable to collect all
amounts due under the contractual terms of the loan agreement. We apply this classification as necessary to non-
covered loans individually evaluated for impairment in our portfolios. Smaller-balance homogenous loans and loans
carried at the lower of cost or fair value are evaluated for impairment on a collective, rather than individual, basis.
Loans to certain borrowers who have experienced financial difficulty and for which the terms have been modified,
resulting in a concession, are considered troubled debt restructurings (“TDRs”) and are classified as impaired.
We generally measure impairment on an individual loan and determine the extent to which a specific valuation
allowance is necessary by comparing the loan’s outstanding balance to either the fair value of the collateral, less the
estimated cost to sell, or the present value of expected cash flows, discounted at the loan’s effective interest rate.
Generally, when the fair value of the collateral, net of the estimated cost to sell, or the present value of the expected
cash flows is less than the recorded investment in the loan, any shortfall is promptly charged off.
We also follow a process to assign general valuation allowances to non-covered loan categories. General
valuation allowances are established by applying our loan loss provisioning methodology, and reflect the inherent risk
in outstanding held-for-investment loans. This loan loss provisioning methodology considers various factors in
determining the appropriate quantified risk factors to use to determine the general valuation allowances. The factors
assessed begin with the historical loan loss experience for each major loan category. We also take into account an
estimated historical loss emergence period (which is the period of time between the event that triggers a loss and the
confirmation and/or charge-off of that loss) for each loan portfolio segment.
The allocation methodology consists of the following components: First, we determine an allowance for loan
losses based on a quantitative loss factor for loans evaluated collectively for impairment. This quantitative loss factor
is based primarily on historical loss rates, after considering loan type, historical loss and delinquency experience, and
loss emergence periods. The quantitative loss factors applied in the methodology are periodically re-evaluated and
adjusted to reflect changes in historical loss levels, loss emergence periods, or other risks. Lastly, we allocate an
allowance for loan losses based on qualitative loss factors. These qualitative loss factors are designed to account for
losses that may not be provided for by the quantitative loss component due to other factors evaluated by management,
which include, but are not limited to:
• Changes in lending policies and procedures, including changes in underwriting standards and collection,
and charge-off and recovery practices;
• Changes in international, national, regional, and local economic and business conditions and developments
that affect the collectability of the portfolio, including the condition of various market segments;
• Changes in the nature and volume of the portfolio and in the terms of loans;
• Changes in the volume and severity of past-due loans, the volume of non-accrual loans, and the volume and
severity of adversely classified or graded loans;
• Changes in the quality of our loan review system;
38
• Changes in the value of the underlying collateral for collateral-dependent loans;
• The existence and effect of any concentrations of credit, and changes in the level of such concentrations;
• Changes in the experience, ability, and depth of lending management and other relevant staff; and
• The effect of other external factors, such as competition and legal and regulatory requirements, on the level
of estimated credit losses in the existing portfolio.
By considering the factors discussed above, we determine an allowance for non-covered loan losses that is
applied to each significant loan portfolio segment to determine the total allowance for losses on non-covered loans.
The historical loss period we use to determine the allowance for loan losses on non-covered loans is a rolling
28-quarter look-back period, as we believe this produces an appropriate reflection of our historical loss experience.
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;
• Regular meetings of executive management with the pertinent Board committee, during which observable
trends in the local economy and/or the real estate market are discussed;
• Assessment of the aforementioned factors by the pertinent members of the Boards of Directors and
management when making a business judgment regarding the impact of anticipated changes on the future
level of loan losses; and
• Analysis of the portfolio in the aggregate, as well as on an individual loan basis, taking into consideration
payment history, underwriting analyses, and internal risk ratings.
In order to determine their overall adequacy, each of the respective non-covered loan loss allowances is reviewed
quarterly by management and the Board of Directors of the Community Bank or the Commercial Bank, as applicable.
We charge off loans, or portions of loans, in the period that such loans, or portions thereof, are deemed
uncollectible. The collectability of individual loans is determined through an assessment of the financial condition and
repayment capacity of the borrower and/or through an estimate of the fair value of any underlying collateral. For non-
real estate-related consumer credits, the following past-due time periods determine when charge-offs are typically
recorded: (1) Closed-end credits are charged off in the quarter that the loan becomes 120 days past due; (2) Open-end
credits are charged off in the quarter that the loan becomes 180 days past due; and (3) Both closed-end and open-end
credits are typically charged off in the quarter that the credit is 60 days past the date we received notification that the
borrower has filed for bankruptcy.
The level of future additions to the respective non-covered loan loss allowances is based on many factors,
including certain factors that are beyond management’s control, such as changes in economic and local market
conditions, including declines in real estate values, and increases in vacancy rates and unemployment. Management
uses the best available information to recognize losses on loans or to make additions to the loan loss allowances;
however, the Community Bank and/or the Commercial Bank may be required to take certain charge-offs and/or
recognize further additions to their loan loss allowances, based on the judgment of regulatory agencies with regard to
information provided to them during their examinations of the Banks.
An allowance for unfunded commitments is maintained separate from the allowances for non-covered loan
losses and is included in “Other liabilities” in the Consolidated Statements of Condition.
See Note 6, “Allowances for Loan Losses” for a further discussion of our allowance for losses on covered loans,
as well as additional information about our allowance for losses on non-covered loans.
Goodwill Impairment
We have significant intangible assets related to goodwill. In connection with our acquisitions, assets acquired
and liabilities assumed are recorded at their estimated fair values. Goodwill represents the excess of the purchase price
of our acquisitions over the fair value of identifiable net assets acquired, including other identified intangible assets.
Our goodwill is evaluated for impairment annually as of year-end or more frequently if conditions exist that indicate
that the value may be impaired. Our determination of whether or not goodwill is impaired requires us to make
significant judgments and requires us to use significant estimates and assumptions regarding estimated future cash
flows. If we change our strategy or if market conditions shift, our judgments may change, which may result in
adjustments to the recorded goodwill balance.
39
We test our goodwill for impairment at the reporting unit level. These impairment evaluations are performed by
comparing the carrying value of the goodwill of a reporting unit to its estimated fair value. We allocate goodwill to
reporting units based on the reporting unit expected to benefit from the business combination. We had previously
identified two reporting units: our Banking Operations reporting unit, and our Residential Mortgage Banking reporting
unit. On September 29, 2017, the Company sold the Residential Mortgage Banking reporting unit. Our reporting units
are the same as our operating segments and reportable segments.
For annual goodwill impairment testing, we have the option to first perform a qualitative assessment to
determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount,
including goodwill and other intangible assets. If we conclude that this is the case, we must perform the two-step test
described below. If we conclude based on the qualitative assessment that it is not more likely than not that the fair
value of a reporting unit is less than its carrying amount, we have completed our goodwill impairment test and do not
need to perform the two-step test.
Step one requires the fair value of each reporting unit is compared to its carrying value in order to identify
potential impairment. If the fair value of a reporting unit exceeds the carrying value of its net assets, goodwill is not
considered impaired and no further testing is required. If the carrying value of the net assets exceeds the fair value of
a reporting unit, potential impairment is indicated at the reporting unit level and step two of the impairment test is
performed.
Step two requires that when potential impairment is indicated in step one, we compare the implied fair value of
goodwill with the carrying amount of that goodwill. Determining the implied fair value of goodwill requires a
valuation of the reporting unit’s tangible and (non-goodwill) intangible assets and liabilities in a manner similar to the
allocation of the purchase price in a business combination. Any excess in the value of a reporting unit over the amounts
assigned to its assets and liabilities is referred to as the implied fair value of goodwill. If the carrying amount of the
reporting unit goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount
equal to that excess.
As of December 31, 2017, we had goodwill of $2.4 billion. During the year ended December 31, 2017, no
triggering events were identified that indicated that the value of goodwill may be impaired. The Company performed
its annual goodwill impairment assessment as of December 31, 2017 using step one of the quantitative test 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.
On December 22, 2017 the federal Tax Cuts and Jobs Act, (the “Tax Reform Act”) was enacted into law. The
Tax Reform Act significantly revised the U.S. corporate income tax regime by, among other things, lowering of the
U.S. corporate tax rate from 35% to 21% effective January 1, 2018. U.S. GAAP requires that the impact of tax
legislation be recognized in the period in which the law was enacted. As a result of the Tax Reform Act, the Company
recorded a tax benefit of $42 million due to the net impact of remeasurement of tax attributes affected by the Tax
Reform Act.
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
40
benefits associated with valuation allowances recorded in a business combination would be recorded as an adjustment
to goodwill.
FINANCIAL CONDITION
Balance Sheet Summary
At December 31, 2017, we recorded total assets of $49.1 billion, a $197.6 million increase from the balance at
December 31, 2016. Loans, net, and securities represented $38.3 billion and $3.5 billion, respectively, of the
December 31st balance and were down $1.0 billion and $285.6 million, respectively, from the prior year-end balances.
The main reason for the decline in loan balances was due to the sale, during the year, of our covered loan portfolio,
which totaled $1.7 billion at December 31, 2016. Excluding this sale, total non-covered loans, net, were $38.3 billion
at the current year-end, up $631.6 million or 1.7% from the prior year-end.
Total deposits and borrowed funds were $29.1 billion and $12.9 billion, respectively, at December 31, 2017.
Deposits increased $214.3 million, or 0.7%, as compared to the prior year-end, while wholesale borrowings declined
5.7% or $760.0 million versus the balance at December 31, 2016.
Total stockholders’ equity rose $671.4 million from the year-end 2016 balance, due primarily to a
$502.8 million preferred stock offering in March of 2017. Common stockholders’ equity represented 12.81% of total
assets at December 31, 2017 compared to 12.52% at December 31, 2016. Book value per common share was $12.88
at December 31, 2017 compared to $12.57 at December 31, 2016.
Loans
Total loans declined $1.0 billion year-over-year to $38.4 billion, representing 78.2% of total assets at
December 31, 2017. Included in the 2016 year-end amount were covered loans of $1.7 billion. Given the sale of those
loans during 2017, the Company did not have any covered loans as of December 31, 2017 and only $35.3 million of
non-covered loans held for sale compared to non-covered loans held for sale of $409.2 million at December 31, 2016.
Covered Loans
As previously discussed, the Company sold its covered loan portfolio during the third quarter of 2017; therefore,
the Company does not have any covered loans outstanding as of December 31, 2017. Covered loans at December 31,
2016 were $1.7 billion.
Non-Covered Loans Held for Investment
The majority of the loans we produce are loans held for investment and most of the held-for-investment loans
we produce are multi-family loans. Our production of multi-family loans began several decades ago in the five
boroughs of New York City, where the majority of the rental units currently consist of rent-regulated apartments
featuring below-market rents.
In addition to multi-family loans, our portfolio of loans held for investment contains a large number of CRE
credits, most of which are secured by income-producing properties located in New York City and on Long Island.
In addition to multi-family loans and CRE loans, our portfolio includes substantially smaller balances of one-
to-four family loans, ADC loans, and other loans held for investment, with commercial and industrial (“C&I”) loans
comprising the bulk of the other loan portfolio. Specialty finance loans and leases account for most of our C&I credits,
with the remainder consisting primarily of loans to small and mid-size businesses, referred to as other C&I loans.
At December 31, 2017, loans secured by multi-family, non-owner occupied CRE, and ADC properties
represented 742.1% of the consolidated Banks’ total risk-based capital, within our limit of 850%.
In 2017, we originated $8.9 billion of held-for-investment loans, a $264.0 million decrease from the prior year.
A major reason for this decline was related to a drop in one-to-four family originations, as we exited that business in
the third quarter of the year. During 2017, we sold $429.4 million of held-for-investment loans, largely through
participations, as compared to $1.7 billion in 2016. The decline in loan sales is consistent with the Company’s strategy
of resuming growth in the second half of 2017. In 2017, sales of such loans produced net gains of $1.2 million as
compared to $15.8 million in 2016.
41
Multi-Family Loans
Multi-family loans are our principal asset. The loans we produce are primarily secured by non-luxury residential
apartment buildings in New York City that feature rent-regulated units and below-market rents—a market we refer to
as our “primary lending niche.” Consistent with our emphasis on multi-family lending, multi-family loan originations
represented $5.4 billion, or 60.3%, of the loans we produced for investment in 2017. The latter amount was
$307.2 million, or 5%, lower than the prior year’s volume.
At December 31, 2017, multi-family loans represented $28.1 billion, or 73.2%, of total non-covered loans held
for investment, reflecting a year-over-year increase of $1.1 billion, or 4.2%.
At December 31, 2017 and 2016, respectively, the average multi-family loan had a principal balance of
$5.8 million and $5.5 million; the expected weighted average life of the portfolio was 2.6 years and 2.9 years at the
respective dates.
The majority of our multi-family loans are made to long-term owners of buildings with apartments that are
subject to rent regulation and feature below-market rents. Our borrowers typically use the funds we provide to make
building-wide improvements and renovations to certain apartments, as a result of which they are able to increase the
rents their tenants pay. In doing so, the borrower creates more cash flows to borrow against in future years.
In addition to underwriting multi-family loans on the basis of the buildings’ income and condition, we consider
the borrowers’ credit history, profitability, and building management expertise. Borrowers are required to present
evidence of their ability to repay the loan from the buildings’ current rent rolls, their financial statements, and related
documents.
While a small percentage of our multi-family loans are ten-year fixed rate credits, the vast majority of our multi-
family loans feature a term of ten or twelve years, with a fixed rate of interest for the first five or seven years of the
loan, and an alternative rate of interest in years six through ten or eight through twelve. The rate charged in the first
five or seven years is generally based on intermediate-term interest rates plus a spread. During the remaining years,
the loan resets to an annually adjustable rate that is tied to the prime rate of interest, plus a spread. Alternately, the
borrower may opt for a fixed rate that is tied to the five-year fixed advance rate of the Federal Home Loan Bank of
New York (the “FHLB-NY”), plus a spread. The fixed-rate option also requires the payment of one percentage point
of the then-outstanding loan balance. In either case, the minimum rate at repricing is equivalent to the rate in the initial
five-or seven-year term. As the rent roll increases, the typical property owner seeks to refinance the mortgage, and
generally does so before the loan reprices in year six or eight.
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.
Because prepayment penalties are recorded as interest income, they are reflected in the average yields on our
loans and interest-earning assets, our net 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 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. The process of producing such
loans is generally four to six weeks in duration and, because the multi-family market is largely broker-driven, the
expense incurred in sourcing such loans is substantially reduced.
At December 31, 2017, the majority of our multi-family loans were secured by rental apartment buildings. In
addition, 63.6% of our multi-family loans were secured by buildings in New York City and 5.3% were secured by
buildings elsewhere in New York State. The remaining multi-family loans were secured by buildings outside these
markets, including in the four other states served by our retail branch offices.
42
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 loan-to-value ratios (“LTVs”) our multi-family loans feature
at origination, a relatively small percentage of the multi-family loans that have transitioned to non-performing status
have actually resulted in losses, even when the credit cycle has taken a downward turn.
We primarily underwrite our multi-family loans based on the current cash flows produced by the collateral
property, with a reliance on the “income” approach to appraising the properties, rather than the “sales” approach. The
sales approach is subject to fluctuations in the real estate market, as well as general economic conditions, and is
therefore likely to be more risky in the event of a downward credit cycle turn. We also consider a variety of other
factors, including the physical condition of the underlying property; the net operating income of the mortgaged
premises prior to debt service; the debt service coverage ratio (“DSCR”), which is the ratio of the property’s net
operating income to its debt service; and the ratio of the loan amount to the appraised value (i.e., the LTV) of the
property.
In addition to requiring a minimum DSCR of 120% on multi-family buildings, we obtain a security interest in
the personal property located on the premises, and an assignment of rents and leases. Our multi-family loans generally
represent no more than 75% of the lower of the appraised value or the sales price of the underlying property, and
typically feature an amortization period of 30 years. In addition, our multi-family loans may contain an initial interest-
only period which typically does not exceed two years; however, these loans are underwritten on a fully amortizing
basis.
Accordingly, while our multi-family lending niche has not been immune to downturns in the credit cycle, the
limited number of losses we have recorded, even in adverse credit cycles, suggests that the multi-family loans we
produce involve less credit risk than certain other types of loans. In general, buildings that are subject to rent regulation
have tended to be stable, with occupancy levels remaining more or less constant over time. Because the rents are
typically below market and the buildings securing our loans are generally maintained in good condition, they have
been more likely to retain their tenants in adverse economic times. In addition, we exclude any short-term property
tax exemptions and abatement benefits the property owners receive when we underwrite our multi-family loans.
Commercial Real Estate Loans
At December 31, 2017, CRE loans represented $7.3 billion, or 19.1%, of total loans held for investment, as
compared to $7.7 billion, or 20.7%, at December 31, 2016. The growth of the portfolio was tempered by prepayment
activity during the year. The average CRE loan had a principal balance of $5.7 million at the end of this December,
as compared to $5.6 million at the prior year-end. In addition, the portfolio had an expected weighted average life of
3.0 years and 3.4 years at the corresponding dates.
CRE loans represented $1.0 billion, or 11.7%, of the loans we produced in 2017 for investment, as compared to
$1.2 billion, or 12.9%, in the prior year.
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, 2017, 69.3% of our CRE loans
were secured by properties in New York City, while properties on Long Island accounted for 11.8%. Other parts of
New York State accounted for 2.6% of the properties securing our CRE credits, while all other states accounted for
16.3%, combined.
The terms of our CRE loans are similar to the terms of our multi-family credits. While a small percentage of
our CRE loans feature ten-year fixed-rate terms, they primarily feature a fixed rate of interest for the first five or seven
years of the loan that is generally based on intermediate-term interest rates plus a spread. During years six through ten
or eight through twelve, the loan resets to an annually adjustable rate that is tied to the prime rate of interest, plus a
spread. Alternately, the borrower may opt for a fixed rate that is tied to the five-year fixed advance rate of the FHLB-
NY plus a spread. The fixed-rate option also requires the payment of an amount equal to one percentage point of the
then-outstanding loan balance. In either case, the minimum rate at repricing is equivalent to the rate in the initial five-
or seven-year term.
Prepayment penalties apply to our CRE loans, as they do our multi-family credits. Depending on the remaining
term of the loan at the time of prepayment, the penalties normally range from five percentage points to one percentage
point of the then-current loan balance. If a loan extends past the fifth or seventh year and the borrower selects the fixed
rate option, the prepayment penalties typically reset to a range of five points to one point over years six through ten
43
or eight through twelve. Our CRE loans tend to refinance within three to four years of origination, as reflected in the
expected weighted average life of the CRE portfolio noted above.
The repayment of loans secured by commercial real estate is often dependent on the successful operation and
management of the underlying properties. To minimize our credit risk, we originate CRE loans in adherence with
conservative underwriting standards, and require that such loans qualify on the basis of the property’s current income
stream and DSCR. The approval of a loan also depends on the borrower’s credit history, profitability, and expertise
in property management, and generally requires a minimum DSCR of 130% and a maximum LTV of 65%. In addition,
the origination of CRE loans typically requires a security interest in the fixtures, equipment, and other personal
property of the borrower and/or an assignment of the rents and/or leases. In addition, our CRE loans may contain an
interest-only period which typically does not exceed three years; however, these loans are underwritten on a fully
amortizing basis.
One-to-Four Family Loans
At December 31, 2017, one-to-four family loans represented $477.2 million, or 1.2%, of total loans held for
investment, as compared to $381.1 million, or 1.0%, at the prior year-end. The year-over-year increase was due to
certain mixed use CRE loans with less than five residential units being classified as one-to-four family loans. Other
than these types of loans, we do not currently expect to originate one-to-four family loans.
The majority of the one-to-four family loans we produced for investment were prime jumbo adjustable-rate
mortgage loans made at conservative LTVs to borrowers with high credit ratings. Originations of one-to-four family
loans dropped $179.1 million year-over-year to $124.8 million, as we exited this line of business. Such loans
continued to represent a small portion (1.4%) of the held-for-investment loans we produced in 2017.
Acquisition, Development, and Construction Loans
At December 31, 2017, ADC loans represented $435.8 million, or 1.1%, of total loans held for investment, as
compared to $381.2 million, or 1.0%, at the prior year-end. Originations of ADC loans totaled $77.2 million in 2017,
down $73.0 million from the year-earlier amount.
At December 31, 2017, 43.1% of the loans in our ADC portfolio were for land acquisition and development;
the remaining 56.9% consisted of loans that were provided for the construction of commercial properties and owner-
occupied homes. Loan terms vary based upon the scope of the construction, and generally range from 18 months to
two years. They also feature a floating rate of interest tied to prime, with a floor. At December 31, 2017, 77.4% of our
ADC loans were for properties in New York City.
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, 2017 and 2016, we recovered losses against guarantees of $601,000 and $337,000, respectively.
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 developer’s experience; the estimated cost of construction, including interest;
and the estimated time to complete and/or sell or lease such property.
When applicable, as a condition to closing an ADC loan, it is our practice to require that properties meet pre-
sale or pre-lease requirements prior to funding.
C&I Loans
Our C&I loans are divided into two categories: specialty finance loans and leases, and other C&I loans, as
further described below.
Specialty Finance Loans and Leases
At December 31, 2017 and 2016, specialty finance loans and leases represented $1.5 billion and $1.3 billion,
respectively, of total loans held for investment, and $1.8 billion and $1.3 billion, respectively, of the C&I loans
produced over the course of those years.
We produce our specialty finance loans and leases through a subsidiary that is staffed by a group of industry
veterans with expertise in originating and underwriting senior securitized debt and equipment loans and leases. The
subsidiary participates in syndicated loans that are brought to them, and equipment loans and leases that are assigned
to them, by a select group of nationally recognized sources, and are generally made to large corporate obligors, many
44
of which are publicly traded, carry investment grade or near-investment grade ratings, and participate in
stable industries nationwide.
The specialty finance loans and leases we fund fall into three categories: asset-based lending, dealer floor-plan
lending, and equipment loan and lease financing. Each of these credits is secured with a perfected first security interest
in, or outright ownership of, the underlying collateral, and structured as senior debt or as a non-cancelable lease. Asset-
based and dealer floor-plan loans are priced at floating rates predominately tied to LIBOR, while our equipment
financing credits are priced at fixed rates at a spread over Treasuries.
Since launching our specialty finance business in the third quarter of 2013, no losses have been recorded on any
of the loans or leases in this portfolio.
Other C&I Loans
In the twelve months ended December 31, 2017, other C&I loans declined $132.1 million to $500.8 million,
and represented $511.4 million of the held-for-investment loans we produced. Included in the balance at year-end
2017 were taxi medallion-related loans of $99.1 million. The portfolio of taxi medallion-related loans represented
0.26% of total held-for-investment loans at December 31, 2017.
In contrast to the loans produced by our specialty finance subsidiary, the other C&I loans we produce are
primarily made to small and mid-size businesses in the five boroughs of New York City and on Long Island. Such
loans are tailored to meet the specific needs of our borrowers, and include term loans, demand loans, revolving lines
of credit, and, to a much lesser extent, loans that are partly guaranteed by the Small Business Administration.
A broad range of other C&I loans, both collateralized and unsecured, are made available to businesses for
working capital (including inventory and accounts receivable), business expansion, the purchase of machinery and
equipment, and other general corporate needs. In determining the term and structure of other C&I loans, several factors
are considered, including the purpose, the collateral, and the anticipated sources of repayment. Other C&I loans are
typically secured by business assets and personal guarantees of the borrower, and include financial covenants to
monitor the borrower’s financial stability.
The interest rates on our other C&I loans can be fixed or floating, with floating-rate loans being tied to prime
or some other market index, plus an applicable spread. Our floating-rate loans may or may not feature a floor rate of
interest. The decision to require a floor on other C&I loans depends on the level of competition we face for such loans
from other institutions, the direction of market interest rates, and the profitability of our relationship with the borrower.
Other Loans
At December 31, 2017, other loans totaled $8.5 million and consisted primarily of a variety of consumer loans,
most of which were overdraft loans, and loans to non-profit organizations. 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 approved by the Management Credit Committee, the Mortgage and
Real Estate Committee of the Community Bank (the “Mortgage Committee”), the Credit Committee of the
Commercial Bank (the “Credit Committee”), and the respective Boards of Directors of the Banks.
Prior to 2017, all loans originated by the Banks were presented to the Mortgage Committee or the Credit
Committee, as applicable. Furthermore, all loans of $20.0 million or more originated by the Community Bank, and all
loans of $10.0 million or more originated by the Commercial Bank, were reported to the applicable Board of Directors.
Effective January 27, 2017, all loans other than C&I loans less than or equal to $3.0 million are required to be
presented to the Management Credit Committee for approval. All multi-family, CRE, and other C&I loans in excess
of $5.0 million, and specialty finance loans in excess of $15.0 million, are also required to be presented to the
Mortgage Committee or the Credit Committee, as applicable, so that the Committees can review the loans’ associated
risks. The Committees have authority to direct changes in lending practices as they deem necessary or appropriate in
order to address individual or aggregate risks and credit exposures in accordance with the Bank’s strategic objectives
and risk appetites.
45
All mortgage loans in excess of $50.0 million and all other C&I loans in excess of $5.0 million require approval
by the Mortgage Committee or the Credit Committee. Credit Committee approval also is required for specialty finance
loans in excess of $15.0 million.
In addition, all loans of $20.0 million or more originated by the Community Bank, and all loans of $10.0 million
or more originated by the Commercial Bank, continue to be reported to the applicable Board of Directors, and all C&I
loans less than or equal to $3.0 million continue to be approved by line-of-business personnel.
In 2017, 172 loans of $10.0 million or more were originated by the Banks, with an aggregate loan balance of
$4.2 billion at origination. In 2016, by comparison, 176 loans of $10.0 million or more were originated, with an
aggregate loan balance at origination of $5.1 billion.
At December 31, 2017 and 2016, the largest loan in our portfolio was a loan originated by the Community Bank
on June 28, 2013 to the owner of a commercial office building located in Manhattan. As of the date of this report, the
loan has been current since origination. The balance of the loan was $287.5 million at both year-ends.
Geographical Analysis of the Portfolio of Non-Covered Loans Held for Investment
The following table presents a geographical analysis of the multi-family and CRE loans in our held-for-
investment loan portfolio at December 31, 2017:
(dollars in thousands)
New York City:
Manhattan
Brooklyn
Bronx
Queens
Staten Island
Total New York City
Long Island
Other New York State
All other states
Total
At December 31, 2017
Multi-Family Loans
Amount
$ 7,399,409
4,340,472
3,783,194
2,252,315
78,513
$17,853,903
517,651
971,697
8,731,458
$28,074,709
Percent
of Total
26.36 %
15.46
13.48
8.02
0.28
63.60 %
1.84
3.46
31.10
100.00 %
Commercial Real Estate Loans
Percent
of Total
Amount
$3,712,116
563,867
95,758
647,774
55,721
$5,075,236
862,888
191,797
1,192,305
$7,322,226
50.70 %
7.70
1.31
8.84
0.76
69.31 %
11.79
2.62
16.28
100.00 %
At December 31, 2017, the largest concentration of ADC loans held for investment was in New York City, with
a total of $337.4 million at that date. The majority of our other C&I loans held for investment were secured by
properties and/or businesses located in Metro New York.
46
Loan Maturity and Repricing Analysis: 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, 2017. Loans that have adjustable rates are shown as being due in the period during which
their interest rates are next subject to change.
Non-Covered Loans Held for Investment
at December 31, 2017
Multi-
Family
Commercial
Real Estate
One-to-Four
Family
Acquisition,
Development,
and
Construction
Other
Total
Loans
$ 1,170,796
$ 858,534
$ 8,985
$374,369
$1,071,480 $ 3,484,164
18,470,347
8,433,566
4,567,130
1,896,562
119,823
348,420
52,414
9,042
536,467
441,087
23,746,181
11,128,677
(in thousands)
Amount due:
Within one year
After one year:
One to five years
Over five years
Total due or repricing after
one year
26,903,913
6,463,692
468,243
61,456
977,554
34,874,858
Total amounts due or
repricing, gross
$28,074,709
$7,322,226
$477,228
$435,825
$2,049,034 $38,359,022
The following table sets forth, as of December 31, 2017, the dollar amount of all non-covered loans held for
investment that are due after December 31, 2018, and indicates whether such loans have fixed or adjustable rates of
interest:
(in thousands)
Mortgage Loans:
Multi-family
Commercial real estate
One-to-four family
Acquisition, development, and construction
Total mortgage loans
Other loans
Total loans
Non-Covered Loans Held for Sale
Due after December 31, 2018
Adjustable
Total
Fixed
$2,817,144
506,207
20,337
666
3,344,354
26,788
$3,371,142
$24,086,769
5,957,485
447,906
60,790
30,552,950
950,766
$31,503,716
$26,903,913
6,463,692
468,243
61,456
33,897,304
977,554
$34,874,858
At December 31, 2017, non-covered loans held for sale were $35.3 million, down $373.9 million from the
amounts at December 31, 2016. The decline is largely attributable to our exit from the residential mortgage banking
business, earlier in the year.
47
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, 2017 and 2016:
(dollars in thousands)
Mortgage Loans Originated for Investment:
Multi-family
Commercial real estate
One-to-four family residential
Acquisition, development, and construction
Total mortgage loans originated for investment
Other Loans Originated for Investment:
Specialty finance
Other commercial and industrial
Other
Total other loans originated for investment
Total loans originated for investment
Loans originated for sale
Total loans originated
For the Years Ended December 31,
2016
2017
Amount
Percent
of Total
Amount
Percent
of Total
$ 5,377,600
1,039,105
124,763
77,153
6,618,621
50.77 %
9.81
1.18
0.73
62.49
1,784,549
511,416
3,159
2,299,124
$ 8,917,745
1,674,123
$ 10,591,868 100.00 %
16.85
4.83
0.03
21.71
84.20 %
15.80
$ 5,684,838
1,180,430
303,877
150,177
7,319,322
41.10 %
8.54
2.20
1.09
52.93
1,266,362
592,250
3,856
1,862,468
$ 9,181,790
4,646,773
$ 13,828,563 100.00 %
9.16
4.28
0.03
13.47
66.40 %
33.60
48
Loan Portfolio Analysis
The following table summarizes the composition of our loan portfolio at each year-end for the five years ended December 31, 2017:
(dollars in thousands)
Non-Covered Mortgage Loans:
Multi-family
Commercial real estate
One-to-four family
Acquisition, development, and
construction
Total non-covered mortgage loans
Non-Covered Other Loans:
Specialty finance
Other commercial and industrial
Other loans
Total non-covered other loans
Total non-covered loans held for investment
Loans held for sale
Total non-covered loans
Covered loans
Total loans
Net deferred loan origination costs
Allowance for losses on non-covered loans
Allowance for losses on covered loans
Total loans, net
2017
Percent
of Total
Loans
Percent
of Non-
Covered
Loans
Amount
Amount
2016
Percent
of Total
Loans
Percent
of Non-
Covered
Loans
At December 31,
2015
Percent
of Total
Loans
Percent
of Non-
Covered
Loans
Amount
Amount
$28,074,709 73.12 % 73.12 % $26,945,052 68.28 % 71.35 % $25,971,629 68.04 % 71.93 % $23,831,846
7,634,320
7,322,226 19.07
138,915
1.24
7,857,204 20.58
0.31
7,724,362 19.57
0.97
21.76
0.32
19.07
1.24
20.45
1.01
116,841
477,228
381,081
2014
Percent
of Total
Loans
Percent
of Non-
Covered
Loans
Amount
2013
Percent
of Total
Loans
Percent
of Non-
Covered
Loans
66.54 % 71.39 %
21.32
0.39
22.87
0.41
$20,699,927
62.89 % 68.71 %
7,364,231 22.37
1.70
560,730
24.44
1.86
435,825
1.14
36,309,988 94.57
1.14
94.57
381,194
0.97
35,431,689 89.79
1.01
93.82
311,676
0.82
34,257,350 89.75
0.86
94.87
258,116
0.72
31,863,197 88.97
0.77
95.44
344,100
1.05
28,968,988 88.01
1.14
96.15
4.01
1,539,733
1.31
500,841
0.02
8,460
2,049,034
5.34
$38,359,022 99.91
0.09
$38,394,280 100.00
--
35,258
--
$38,394,280 100.00 %
1,267,530
632,915
24,067
1,924,512
4.01
1.31
0.02
5.34
99.91
0.09
3.21
1.60
0.06
4.87
$37,356,201 94.66
1.04
409,152
100.00 % $37,765,353 95.70
4.30
1,698,133
880,673
569,883
32,583
1,483,139
3.36
1.68
0.06
5.10
98.92
1.08
2.31
1.49
0.09
3.89
$35,740,489 93.64
0.96
367,221
100.00 % $36,107,710 94.60
5.40
2,060,089
632,827
476,394
31,943
1,141,164
2.44
1.58
0.09
4.11
98.98
1.02
1.77
1.33
0.09
3.19
92.16
1.06
100.00 % $33,383,760 93.22
6.78
$33,004,361
379,399
2,428,622
1.89
1.43
0.10
3.42
98.86
1.14
0.52
172,698
1.95
640,993
0.12
39,036
852,727
2.59
$29,821,715 90.60
0.93
306,915
100.00 % $30,128,630 91.53
8.47
2,788,618
0.57
2.13
0.13
2.83
98.98
1.02
100.00 %
$39,463,486 100.00 %
$38,167,799 100.00 %
$35,812,382 100.00 %
$32,917,248 100.00 %
28,949
(158,046 )
--
$38,265,183
26,521
(158,290 )
(23,701 )
$39,308,016
22,715
(147,124 )
(31,395 )
$38,011,995
20,595
(139,857 )
(45,481 )
$35,647,639
16,274
(141,946 )
(64,069 )
$32,727,507
49
Outstanding Loan Commitments
At December 31, 2017 and 2016, we had outstanding loan commitments of $1.9 billion and $2.1 billion,
respectively. Loans held for investment represented $1.9 billion of the year-end 2017 amount and $1.8 billion of the
year-end 2016 amount. We had no commitments for loans held for sale at the end of this December, as compared to
$242.5 million at the prior year-end.
We also had commitments to issue letters of credit totaling $339.4 million and $324.3 million at December 31,
2017 and 2016, respectively. The fees we collect in connection with the issuance of letters of credit are included in
“Fee income” in the Consolidated Statements of Operations and Comprehensive Income (Loss).
The letters of credit we issue consist of performance stand-by, financial stand-by, and commercial letters of
credit. Financial stand-by letters of credit primarily are issued for the benefit of other financial institutions,
municipalities, or landlords on behalf of certain of our current borrowers, and obligate us to guarantee payment of a
specified financial obligation. Performance stand-by 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.
For more information about our outstanding loan commitments and commitments to issue letters of credit at the
end of this December, see the discussion of “Liquidity” later in this discussion and analysis of our financial condition
and results of operations.
Asset Quality
Non-Covered Loans Held for Investment and Non-Covered Repossessed Assets
Non-performing non-covered assets represented $90.1 million, or 0.18%, of total non-covered assets at the end
of this December, as compared to $68.1 million, representing 0.14% of total non-covered assets, at December 31,
2016. Total non-accrual non-covered loans increased $17.2 million driven by a $30.0 million increase in non-accrual
non-covered other loans due to a $31.5 million increase in non-accrual taxi medallion-related loans. This was partially
offset by a $12.8 million decline in non-accrual non-covered mortgage loans.
Non-covered repossessed assets increased $4.8 million to $16.4 million at year-end 2017. This increase was
also largely driven by an increase in taxi medallion-related loans.
The following table presents our non-performing non-covered loans by loan type and the changes in the
respective balances from December 31, 2016 to December 31, 2017:
(dollars in thousands)
Non-Performing Non-Covered Loans:
Non-accrual non-covered mortgage loans:
Multi-family
Commercial real estate
One-to-four family residential
Acquisition, development, and construction
Total non-accrual non-covered mortgage loans
Non-accrual non-covered other loans (1)
Total non-performing non-covered loans
Change from
December 31, 2016
to
December 31, 2017
Percent
Amount
December 31,
2016
2017
$11,078 $13,558
9,297
9,679
6,200
38,734
17,735
$73,682 $56,469
6,659
1,966
6,200
25,903
47,779
$ (2,480 )
(2,638 )
(7,713 )
--
(12,831 )
30,044
$17,213
(18.29 )%
(28.37 )
(79.69 )
--
(33.13 )
169.41
30.48
(1) Includes $46.7 million and $15.2 million of non-accrual taxi medallion-related loans at December 31, 2017 and 2016,
respectively.
50
At the end of this December, taxi medallion-related loans totaled $99.1 million, representing 0.26% of our total
held-for-investment loan portfolio. Last December, taxi medallion-related loans totaled $150.7 million, representing
0.40% of our total held-for-investment loan portfolio
The following table sets forth the changes in non-performing non-covered loans over the twelve months ended
December 31, 2017:
(in thousands)
Balance at December 31, 2016
New non-accrual
Charge-offs
Transferred to other real estate owned
Loan payoffs, including dispositions and principal pay-downs
Restored to performing status
Balance at December 31, 2017
$ 56,469
78,743
(24,971 )
(8,233 )
(28,236 )
(90 )
$ 73,682
A loan generally is classified as a “non-accrual” loan when it is 90 days or more past due or when it is deemed
to be impaired because we no longer expect to collect all amounts due according to the contractual terms of the loan
agreement. 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, 2017 and 2016, all of our non-performing
loans were non-accrual loans. A loan is generally returned to accrual status when the loan is current 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 90 days or more 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, a modification in loan terms, or an extension of a maturing loan. We do not analyze
current LTVs on a portfolio-wide basis.
Non-performing loans are reviewed regularly by management and discussed on a monthly basis with the
Mortgage Committee, the Credit Committee, and the Boards of Directors of the respective Banks, as applicable. In
accordance with our charge-off policy, collateral-dependent 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 and other assets that are acquired through foreclosure are classified as repossessed assets, and are
recorded at fair value at the date of acquisition, less the estimated cost of selling the property. Subsequent declines in
the fair value of the assets are charged to earnings and are included in non-interest expense. It is our policy to require
an appraisal and an environmental assessment of properties classified as OREO before foreclosure, and to re-appraise
the properties on an as-needed basis, and not less than annually, until they are sold. We dispose of such properties as
quickly and prudently as possible, given current market conditions and the property’s condition.
To mitigate the potential for credit losses, we underwrite our loans in accordance with credit standards that we
consider to be 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 using the “income approach,” 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, with a member of the Mortgage or Credit Committee
51
participating in inspections on multi-family loans to be originated in excess of $7.5 million, and a member of the
Mortgage or Credit Committee participating in inspections on CRE loans to be originated in excess of $4.0 million.
Furthermore, independent appraisers, whose appraisals are carefully reviewed by our experienced in-house appraisal
officers and staff, perform appraisals on collateral properties. In many cases, a second independent appraisal review
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.
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.
To further manage our credit risk, our lending policies limit the amount of credit granted to any one borrower,
and typically require minimum DSCRs of 120% for multi-family loans and 130% for CRE loans. Although we
typically lend up to 75% of the appraised value on multi-family buildings and up to 65% on commercial properties,
the average LTVs of such credits at origination were below those amounts at December 31, 2017. Exceptions to these
LTV limitations are minimal and are reviewed on a case-by-case basis.
The repayment of loans secured by commercial real estate is often dependent on the successful operation and
management of the underlying properties. To minimize our credit risk, we originate CRE loans in adherence with
conservative underwriting standards, and require that such loans qualify on the basis of the property’s current income
stream and DSCR. The approval of a CRE loan also depends on the borrower’s credit history, profitability, and
expertise in property management. Given that our CRE loans are underwritten in accordance with underwriting
standards that are similar to those applicable to our multi-family credits, the percentage of our non-performing CRE
loans that have resulted in losses has been comparatively small over time.
Multi-family and CRE loans are generally originated at conservative LTVs and DSCRs, as previously stated.
Low LTVs provide a greater likelihood of full recovery and reduce the possibility of incurring a severe loss on a credit;
in many cases, they reduce the likelihood of the borrower “walking 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. Furthermore, in the case of multi-family loans, the cash flows generated by the
properties are generally below-market and have significant value.
With regard to ADC loans, 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, 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.
To minimize the risk involved in specialty finance lending and leasing, each of our credits is secured with a
perfected first security interest or outright ownership in the underlying collateral, and structured as senior debt or as a
non-cancellable lease. To further minimize the risk involved in specialty finance lending and leasing, we re-underwrite
each transaction. In addition, we retain outside counsel to conduct a further review of the underlying documentation.
Other 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 other C&I loans.
In addition, at December 31, 2017, one-to-four family loans, ADC loans, and other loans represented 1.2%,
1.1%, and 5.3%, of total non-covered loans held for investment, as compared to 1.0%, 1.0%, and 5.1%, respectively,
at December 31, 2016. Furthermore, while 2.3% of our other loans were non-performing at the end of this December,
1.4% of our ADC loans and 0.41% of our one-to-four family loans were non-performing at that date.
52
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,
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.
The following table presents our non-covered loans 30 to 89 days past due by loan type and the changes in the
respective balances from December 31, 2016 to December 31, 2017:
(dollars in thousands)
Non-Covered Loans 30-89 Days Past Due:
Multi-family
Commercial real estate
One-to-four family residential
Other loans (1)
Total non-covered loans 30-89 days past due
Change from
December 31, 2016
to
December 31, 2017
Percent
Amount
December 31,
2016
2017
$ 1,258 $ 28
--
2,844
7,511
$17,789 $10,383
13,227
585
2,719
$ 1,230
13,227
(2,259 )
(4,792 )
$ 7,406
4,392.86 %
--
(79.43 )
(63.80 )
71.33
(1) Includes $2.7 million and $6.8 million of non-accrual taxi medallion-related loans at December 31, 2017 and 2016,
respectively.
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 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, adverse economic and market conditions, among other
factors, can negatively impact a borrower’s ability to repay. Historically, our level of charge-offs has been relatively
low in downward credit cycles, even when the volume of non-performing loans has increased. In 2017, we recorded
net charge-offs of $61.2 million, as compared to net charge-offs of $708,000 in the prior year. Taxi medallion-related
net charge-offs accounted for $59.6 million of this year’s amount and $2.5 million of last year’s amount.
Partially reflecting the net charge-offs noted above, and the provision of $60.9 million for the allowance for
non-covered loan losses, the allowance for losses on non-covered loans remained relatively unchanged, equaling
$158.0 million at the end of this December from $158.3 million at December 31, 2016. Reflecting the increase in non-
performing non-covered loans cited earlier in this discussion, the allowance for losses on non-covered loans
represented 214.50% of non-performing non-covered loans at December 31, 2017, as compared to 277.19% at the
prior year-end.
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.
53
The following table presents information about our five largest non-performing loans at December 31, 2017, all
of which are non-covered held-for-investment loans:
Loan No. 1 (2) Loan No. 2
Loan No. 3
Loan No. 4
Loan No. 5
Type of Loan
Origination date
C&I
Multi-Family
ADC
4/29/14
1/05/06
7/07/04
CRE
1/19/07
Multi-Family
4/24/07
Origination balance
$13,325,000
$12,640,000
$6,200,000
$3,000,000
$2,000,000
Full commitment balance (1)
$13,325,000
$12,640,000
$6,200,000
$3,000,000
$2,000,000
Balance at December 31, 2017
$7,677,946
$7,434,196
$6,200,000
$2,513,830
Associated allowance
None
None
None
None
$1,780,488
None
Non-accrual date
Origination LTV
Current LTV
Last appraisal
June 2017
March 2014 October 2016 December 2017
July 2017
N/A
N/A
N/A
79%
57%
57%
67%
63%
50%
54%
68%
February 2017 April 2017
December 2017 September 2017
(1) There are no funds available for further advances on the five largest non-performing loans.
(2) As of June 30, 2017, this loan has been restructured as a TDR.
The following is a description of the five loans identified in the preceding table. It should be noted that no
allocation for the non-covered loan loss allowance was needed for any of these loans, as determined by using the fair
value of collateral method defined in ASC 310-10 and -35.
No. 1 – The borrower is an owner of a finance company based in Delaware. The loan is collateralized by various
taxi medallion-related loans, which in turn, are collateralized by taxi medallions in New York City and
Chicago.
No. 2 – The borrower is an owner of real estate and is based in New Jersey. The loan is collateralized by a multi-
family complex with 314 residential units and four retail stores in Atlantic City, New Jersey.
No. 3 – The borrower is an owner of real estate and is based in Maryland. The loan is collateralized by 1,031
acres of vacant land in La Plata, Maryland.
No. 4 – The borrower is an owner of real estate and is based in New York. The loan is collateralized by a retail
building containing 22,120 square feet of rental area in Nanuet, New York.
No. 5 – The borrower is an owner of real estate and is based in Connecticut. The loan is collateralized by a
multi-family building with 80 residential units in Waterbury, Connecticut.
Troubled Debt Restructurings
In an effort to proactively manage delinquent loans, we have selectively extended such concessions as rate
reductions and extensions of maturity dates, as well as forbearance agreements, to certain borrowers who have
experienced financial difficulty. In accordance with GAAP, we are required to account for such loan modifications or
restructurings as TDRs.
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 management’s judgment regarding the
likelihood that the concession will result in the maximum recovery for the Company.
Loans modified as TDRs are placed on non-accrual status until we determine that future collection of principal
and interest is reasonably assured. This generally requires that the borrower demonstrate performance according to
the restructured terms for at least six consecutive months.
At December 31, 2017, loans modified as TDRs totaled $45.6 million, including accruing loans of $9.7 million
and non-accrual loans of $35.9 million. At the prior year-end, loans modified as TDRs totaled $19.9 million, including
accruing loans of $3.5 million and non-accrual loans of $16.5 million.
54
Analysis of Troubled Debt Restructurings
The following table sets forth the changes in our TDRs over the twelve months ended December 31, 2017:
(in thousands)
Balance at December 31, 2016
New TDRs
Transferred to other real estate owned
Charge-offs
Transferred from accruing to non-accrual
Loan payoffs, including dispositions and
principal pay-downs
Balance at December 31, 2017
Accruing
$ 3,466
8,960
--
--
(1,881 )
Non-Accrual Total
$ 19,920
47,393
(877)
(11,956)
--
$ 16,454
38,433
(877 )
(11,956 )
1,881
(892 )
$ 9,653
(8,032 )
$ 35,903
(8,924)
$ 45,556
Loans on which concessions were made with respect to rate reductions and/or extensions of maturity dates
totaled $44.6 million and $17.1 million, respectively, at December 31, 2017 and 2016; loans in connection with which
forbearance agreements were reached amounted to $1.0 million and $2.8 million at the respective dates.
Multi-family and CRE loans accounted for $8.9 million and $368,000 of TDRs at the end of this December, as
compared to $10.7 million and $1.9 million, respectively, at the prior year-end. Based on the number of loans
performing in accordance with their revised terms, our success rate for restructured multi-family loans was 67%; for
CRE and ADC loans it was100%, and for one-to-four loans it was 50% at the end of this December; our success rate
for other loans was 87%, at that date.
On a limited basis, we may provide 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 2017, no such additional
credit was provided. Furthermore, the terms of our restructured loans typically would not restrict us from cancelling
outstanding commitments for other credit facilities to a borrower in the event of non-payment of a restructured loan.
For additional information about our TDRs at December 31, 2017 and 2016, see the discussion of “Asset
Quality” in Note 5, “Loans” in Item 8, “Financial Statements and Supplementary Data.”
Except for the non-accrual loans and TDRs disclosed in this filing, we did not have any potential problem loans
at December 31, 2017 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.
55
Asset Quality Analysis (Excluding Covered Loans, Covered OREO, Non-Covered Purchased Credit-Impaired
Loans, 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, 2017. Covered loans and non-covered purchased credit-impaired (“PCI”) loans are
considered to be performing due to the application of the yield accretion method, as discussed elsewhere in this report.
Therefore, covered loans and non-covered PCI 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 (recovery of) losses on non-covered loans
Recovery from allowance on PCI loans
Charge-offs:
Multi-family
Commercial real estate
One-to-four family residential
Acquisition, development, and construction
Other loans
Total charge-offs
Recoveries
Net (charge-offs) recoveries
Balance at end of year
Non-Performing Non-Covered Assets:
Non-accrual non-covered mortgage loans:
Multi-family
Commercial real estate
One-to-four family residential
Acquisition, development, and construction
Total non-accrual non-covered mortgage loans
Non-accrual non-covered other loans
Loans 90 days or more past due and still accruing interest
Total non-performing non-covered loans (1)
Non-covered repossessed assets (2)
Total non-performing non-covered assets
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 (recoveries) during the period to average
loans outstanding during the period (3)
Non-Covered Loans 30-89 Days Past Due:
Multi-family
Commercial real estate
One-to-four family residential
Acquisition, development, and construction
Other loans
Total loans 30-89 days past due (4)
2017
$156,524
60,943
1,766
(279 )
--
(96 )
--
(62,975 )
(63,350 )
2,163
(61,187 )
$158,046
$ 11,078
6,659
1,966
6,200
25,903
47,779
--
$ 73,682
16,400
$ 90,082
At or for the Years Ended December 31,
2015
2014
2016
$145,196
12,036
--
$139,857
(2,846 )
--
$141,946
--
--
--
--
(170 )
--
(3,413 )
(3,583 )
2,875
(708 )
$156,524
(167 )
(273 )
(875 )
--
(1,273 )
(2,588 )
10,773
8,185
$145,196
$ 13,558
9,297
9,679
6,200
38,734
17,735
--
$ 56,469
11,607
$ 68,076
$ 13,904
14,920
12,259
27
41,110
5,715
--
$ 46,825
14,065
$ 60,890
(755)
(1,615)
(410)
--
(5,296)
(8,076)
5,987
(2,089)
$139,857
$ 31,089
24,824
11,032
654
67,599
9,351
--
$ 76,950
61,956
$138,906
2013
$140,948
18,000
--
(12,922 )
(3,489 )
(351 )
(1,503 )
(7,092 )
(25,357 )
8,355
(17,002 )
$141,946
$ 58,395
24,550
10,937
2,571
96,453
7,084
--
$103,537
71,392
$174,929
0.19 %
0.15 %
0.13 %
0.23 %
0.35 %
0.18
0.14
0.13
0.30
0.40
214.50
277.19
310.08
181.75
137.10
0.41
0.16
$ 1,258
13,227
585
--
2,719
$17,789
0.42
0.00
$ 28
--
2,844
--
7,511
$10,383
0.41
(0.02 )
$4,818
178
1,117
--
492
$6,605
0.42
0.01
$ 464
1,464
3,086
--
1,178
$6,192
0.48
0.05
$33,678
1,854
1,076
--
481
$37,089
(1) The December 31, 2016, 2015, 2014, and 2013 amounts exclude loans 90 days or more past due of $131.5 million,
$137.2 million, $157.9 million, and $211.5 million, respectively, that are covered by FDIC loss sharing agreements. The
December 31, 2016 and 2015 amounts also exclude $869,000 and $969,000, respectively, of non-covered PCI loans.
(2) The December 31, 2016, 2015, 2014, and 2013 amounts exclude OREO of $17.0 million, $25.8 million, $32.0 million, and
$37.5 million, respectively, that were covered by FDIC loss sharing agreements.
(3) Average loans include covered loans.
(4) The December 31, 2016, 2015, 2014, and 2013 amounts exclude loans 30 to 89 days past due of $22.6 million, $32.8 million,
$41.7 million, and $57.9 million, respectively, that are covered by FDIC loss sharing agreements. The December 31, 2016
amount also excludes $6 thousand of non-covered PCI loans. There were no non-covered PCI loans 30 to 89 days past due
at any of the prior year-ends.
56
The following table sets forth the allocation of the consolidated allowance for losses on non-covered loans, excluding the allowance for losses on non-covered
PCI loans, at each year-end for the five years ended December 31, 2017:
2017
Percent of
Loans in Each
Category
to Total Non-
Covered
Loans Held for
Investment
73.19%
19.09
Amount
$ 91,590
20,943
2016
Percent of
Loans in Each
Category
to Total
Non-Covered
Loans Held
2015
Percent of
Loans in Each
Category
to Total
Non-Covered
Loans Held
for Investment Amount
$ 93,977
19,721
72.13 %
20.68
for Investment Amount
$ 96,212
19,546
72.67 %
21.98
(dollars in thousands)
Multi-family loans
Commercial real estate loans
Amount
$ 93,651
20,572
Percent of
Loans in Each
Category
to Total
Non-Covered
Loans Held for
Investment
72.21 %
23.13
Percent of
Loans in Each
Category
to Total
Non-Covered
Loans Held for
Investment
69.41 %
24.70
Amount
$ 79,745
34,702
2014
2013
One-to-four family loans
Acquisition, development, and
construction loans
Other loans
Total loans
1,360
1.24
1,484
1.02
612
0.33
562
0.42
1,755
1.88
12,692
29,771
$158,046
1.14
5.34
100.00%
9,908
32,599
$156,524
1.02
5.15
100.00 %
8,402
22,484
$145,196
0.87
4.15
100.00 %
6,296
17,241
$139,857
0.78
3.46
100.00 %
7,789
17,955
$141,946
1.15
2.86
100.00 %
57
Each of the preceding allocations was 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.
Asset Quality Analysis (Including Covered Loans, Covered OREO, and Non-Covered PCI Loans)
As previously discussed, we sold the covered loan portfolio during the third quarter of 2017, accordingly, the
following table presents information regarding our non-performing assets and loans past due at December 31, 2016
only, including covered loans and covered OREO (collectively, “covered assets”), and non-covered PCI loans:
(dollars in thousands)
Covered Loans and Non-Covered PCI Loans 90 Days or More
Past Due:
Multi-family
Commercial real estate
One-to-four family
Acquisition, development, and construction
Other
Total covered loans and non-covered PCI loans 90 days or more
past due
Covered other real estate owned
Total covered assets and non-covered PCI loans
Total Non-Performing Assets:
Non-performing loans:
Multi-family
Commercial real estate
One-to-four family
Acquisition, development, and construction
Other non-performing loans
Total non-performing loans
Other real estate owned
Total non-performing assets
Asset Quality Ratios (including the allowance for losses on covered
loans and non-covered PCI loans):
Total non-performing loans to total loans
Total non-performing assets to total assets
Allowance for loan losses to total non-performing loans
Allowance for loan losses to total loans
Covered Loans and Non-Covered PCI Loans 30-89 Days Past Due:
Multi-family
Commercial real estate
One-to-four family
Acquisition, development, and construction
Other loans
Total covered loans and non-covered PCI loans 30-89 days past due
Total Loans 30-89 Days Past Due:
Multi-family
Commercial real estate
One-to-four family
Acquisition, development, and construction
Other loans
Total loans 30-89 days past due
58
At or For the
Year Ended
December 31, 2016
$
--
612
125,076
--
6,646
$ 132,334
16,990
$ 149,324
$ 13,558
9,909
134,755
6,200
24,381
$ 188,803
28,598
$ 217,401
0.48 %
0.44
96.39
0.47
$
--
--
21,112
--
1,542
$ 22,654
$
28
--
23,956
--
9,053
$ 33,037
The following table presents a geographical analysis of our non-performing loans at December 31, 2017:
(in thousands)
New York
New Jersey
Maryland
Connecticut
Arizona
All other states
Total non-performing loans
$52,705
10,976
6,200
1,781
1,174
846
$73,682
Securities
Securities represented $3.5 billion, or 7.2%, of total assets at the end of this December, as compared to
$3.8 billion, or 7.8%, of total assets at December 31, 2016. During the second quarter of 2017, the Company
repositioned its “Held-to-Maturity” securities portfolio by designating the entire portfolio as “Available-for-Sale.” In
addition, it took advantage of favorable bond market conditions and sold approximately $521.0 million of securities,
resulting in a pre-tax gain on sale of $26.9 million. We do not foresee designating securities purchases as “Held-to-
Maturity” in the near future.
At December 31, 2017, available-for-sale securities represented $3.5 billion and had an estimated weighted
average life of 5.2 years. Included in the year-end amount were mortgage-related securities of $2.6 billion and other
securities of $912.7 million.
At the prior year-end, available-for-sale securities represented $104.3 million, or 2.7%, of total securities, and
had an estimated weighted average life of 13.1 years. Mortgage-related securities accounted for $7.3 million of the
year-end balance, with other securities accounting for the remaining $97.0 million.
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 maintains 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) and U.S. Treasury obligations. At December 31, 2017 and 2016, GSE obligations and U.S.
Treasury obligations together represented 94.4% and 93.0% of total securities, respectively. The remainder of the
portfolio at those dates was comprised of corporate bonds, trust preferred securities, and municipal obligations. None
of our securities investments are backed by subprime or Alt-A loans.
Depending on management’s intent at the time of purchase, securities are classified as either “held to maturity”
or “available for sale.” Held-to-maturity securities are securities that management has the positive intent to hold to
maturity. In addition to generating cash flows from repayments, securities held to maturity are a source of earnings
and serve as collateral for our wholesale borrowings.
During the second quarter of 2017, the Company designated its entire securities portfolio as available-for-sale.
Available-for-sale securities are securities that management intends to hold for an indefinite period of time. In addition
to generating cash flows from sales and from repayments of principal and interest, such securities serve as a source of
liquidity for future loan production, the reduction of higher-cost funding, and general operating activities. A decision
to purchase or sell available-for-sale securities is based on economic conditions, including changes in interest rates,
liquidity, and our asset and liability management strategy.
59
Federal Home Loan Bank Stock
As members of the FHLB-NY, the Community Bank and the Commercial Bank are required to acquire and hold
shares of its capital stock. At December 31, 2017, the Community Bank held FHLB-NY stock in the amount of
$588.7 million; the Commercial Bank held FHLB-NY stock of $15.1 million at that date.
At December 31, 2016, the Community Bank and the Commercial Bank held FHLB-NY stock in the amount of
$574.5 million and $16.4 million, respectively.
Dividends from the FHLB-NY to the Community Bank totaled $31.4 million and $26.2 million, respectively,
in 2017 and 2016; dividends from the FHLB-NY to the Commercial Bank totaled $933,000 and $1.4 million in the
corresponding years.
Bank-Owned Life Insurance
Bank-owned life insurance (“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 Operations and Comprehensive
Income (Loss).
Reflecting an increase in the cash surrender value of the underlying policies, our investment in BOLI rose
$18.1 million year-over-year to $967.2 million at December 31, 2017.
Goodwill and Core Deposit Intangibles
We record goodwill and core deposit intangibles (“CDI”) in our consolidated statements of condition in
connection with certain of our business combinations.
Goodwill, which is tested at least annually for impairment, refers to the difference between the purchase price
and the fair value of an acquired company’s assets, net of the liabilities assumed. CDI refers to the fair value of the
core deposits acquired in a business combination, and is typically amortized over a period of ten years from the
acquisition date.
While goodwill totaled $2.4 billion at both December 31, 2017 and 2016, the balance of CDI declined from
$208,000 to zero as a result of amortization over the twelve-month period.
For more information about the Company’s goodwill, see the discussion of “Critical Accounting Policies”
earlier in this report.
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 Parent Company by the
Banks; capital raised through the issuance of securities; 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: retail,
institutional, and brokered deposits; borrowed funds, primarily in the form of wholesale borrowings; cash flows
generated through the repayment and sale of loans; and cash flows generated through the repayment and sale of
securities.
In 2017, loan repayments and sales generated cash flows of $11.7 billion, as compared to $12.5 billion in
2016. Cash flows from repayments accounted for $7.8 billion and $6.4 billion of the respective totals and cash flows
from sales accounted for $3.9 billion and $6.2 billion, of the respective totals.
In 2017, cash flows from the repayment and sale of securities respectively totaled $563.1 million and
$1.0 billion, while the purchase of securities amounted to $1.2 billion for the year. By comparison, cash flows from
the repayment and sale of securities totaled $2.5 billion and $323.3 million, respectively, in 2016, and were offset by
the purchase of securities totaling $492.6 million.
In 2017, the cash flows from loans and securities were primarily deployed into the production of multi-family
loans held for investment, as well as held-for-investment CRE loans and specialty finance loans and leases.
60
Deposits
Deposits totaled $29.1 billion and $28.9 billion, and represented 59.2% and 59.0% of total assets, at December
31, 2017 and 2016, respectively. On a year-over-year basis, the deposit mix shifted as interest-bearing checking and
money market accounts declined 3.4%, savings accounts declined 1.3%, and non-interest-bearing accounts dropped
12.3%. This was offset by growth in our certificates of deposit (“CDs”), which increased 14.1% from year-end 2016.
While the vast majority of our deposits are retail in nature (i.e., they are deposits we have gathered through our
branches or through business combinations), institutional deposits and municipal deposits are also part of our deposit
mix. Retail deposits rose $383.6 million year-over-year to $21.9 billion, while institutional deposits declined
$567.2 million to $2.2 billion at year-end. Municipal deposits represented $999.4 million of total deposits at the end
of this December, a $361.7 million increase from the balance at December 31, 2016.
Depending on their availability and pricing relative to other funding sources, we also include brokered deposits
in our deposit mix. Brokered deposits accounted for $4.0 billion of our deposits at the end of this December, as
compared to $3.9 billion at December 31, 2016. Brokered money market accounts represented $2.6 billion of total
brokered deposits at December 31, 2017 and $2.5 billion at December 31, 2016; brokered interest-bearing checking
accounts represented $793.7 million and $1.4 billion, respectively, at the corresponding dates. At December 31, 2017,
we had $567.8 million of brokered CDs. We had no brokered CDs at December 31, 2016.
Borrowed Funds
The majority of our borrowed funds are wholesale borrowings and consist of FHLB-NY advances, repurchase
agreements, and federal funds purchased, and, to a far lesser extent, junior subordinated debentures. Reflecting a
$760.0 million decline in wholesale borrowings to $12.6 billion, the total balance of borrowed funds were
$12.9 billion at December 31, 2017.
Wholesale Borrowings
Wholesale borrowings totaled $12.6 billion and $13.3 billion, respectively, at December 31, 2017 and 2016,
representing 25.6% and 27.2% of total assets at the respective dates. FHLB-NY advances accounted for $12.1 billion
of the year-end 2017 balance, as compared to $11.7 billion at the prior year-end. Pursuant to blanket collateral
agreements with the Banks, our FHLB-NY advances and overnight advances are secured by pledges of certain eligible
collateral in the form of loans and securities. (For more information regarding our FHLB-NY advances, see the
discussion that appears earlier in this report regarding our membership and our ownership of stock in the FHLB-NY.)
None of our wholesale borrowings had callable features at December 31, 2017 or 2016.
Also included in wholesale borrowings were repurchase agreements of $450.0 million at December 31, 2017
compared to $1.5 billion at December 31, 2016. 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.
We had no federal funds purchased at December 31, 2017. Federal funds purchased represented $150.0 million
of wholesale borrowings at December 31, 2016.
Junior Subordinated Debentures
Junior subordinated debentures totaled $359.2 million at December 31, 2017, slightly higher than the balance
at the prior year-end.
See Note 8, “Borrowed Funds,” in Item 8, “Financial Statements and Supplementary Data” for a further
discussion of our wholesale borrowings and our junior subordinated debentures.
61
Liquidity, Contractual Obligations and Off-Balance Sheet Commitments, and Capital Position
Liquidity
We manage our liquidity to ensure that our 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 $2.5 billion and $557.9 million, respectively, at
December 31, 2017 and 2016. As in the past, our loan and securities portfolios provided meaningful liquidity in 2017,
with cash flows from the repayment and sale of loans totaling $11.7 billion and cash flows from the repayment and
sale of securities totaling $1.6 billion.
Additional liquidity stems from deposits and from our use of wholesale funding sources, including brokered
deposits and wholesale borrowings. In addition, we 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, 2017, our available borrowing capacity with the FHLB-NY was $7.1 billion. In addition, the
Community Bank and the Commercial Bank had available-for-sale securities of $3.5 billion, of which, $2.3 billion is
unpledged.
Furthermore, the Banks both have agreements with the Federal Reserve Bank of New York (the “FRB-NY”)
that enable them to access the discount window as a further means of enhancing their liquidity. In connection with
these agreements, the Banks have pledged certain loans and securities to collateralize any funds they may borrow. At
December 31, 2017, the maximum amount the Community Bank could borrow from the FRB-NY was $1.3 billion;
the maximum amount the Commercial Bank could borrow at that date was $79.5 million. There were no borrowings
against either line of credit at December 31, 2017.
Our primary investing activity is loan production, and the volume of loans we originated for sale and for
investment totaled $10.6 billion in 2017. During this time, the net cash provided by investing activities totaled
$1.1 billion; the net cash provided by our operating activities totaled $1.3 million. Our financing activities used net
cash of $418.1 million.
CDs due to mature or reprice in one year or less from December 31, 2017 totaled $6.8 billion, representing
78.8% of total CDs at that date. Our ability to attract and retain retail deposits, including CDs, depends on numerous
factors, including, among others, the convenience of our branches and our other banking channels; our customers’
satisfaction with the service they receive; the rates of interest we offer; the types of products we feature; and the
attractiveness of their terms.
Our decision to compete for deposits also depends on numerous factors, including, among others, our access to
deposits through acquisitions, the availability of lower-cost funding sources, the impact of competition on pricing, and
the need to fund our loan demand.
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 each of the four quarters of 2017, the Company was required to receive a non-objection from the FRB to pay
all dividends; non-objections were received from the FRB in all four quarters of the year. The Company expects to
continue the exchange of written documentation to obtain the FRB’s non-objection to the declaration of dividends in
2018. The Company has received all necessary non-objections from the FRB for the dividends declared as of the date
of this report.
The Parent Company’s ability to pay dividends may also 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
62
“Superintendent”), the FDIC, and the FRB, 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 2017, the Banks
paid dividends totaling $336.0 million to the Parent Company, leaving $379.5 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, 2017 included $90.5 million in cash and cash equivalents. 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-NY and various brokerage firms. These contractual obligations are reflected in the Consolidated Statements of
Condition under “Deposits” and “Borrowed funds,” respectively. At December 31, 2017, we had CDs of $8.6 billion
and long-term debt (defined as borrowed funds with an original maturity in excess of one year) of $12.9 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 $159.5 million at December 31, 2017.
Contractual Obligations
The following table sets forth the maturity profile of the aforementioned contractual obligations as of
December 31, 2017:
(in thousands)
One year or less
One to three years
Three to five years
More than five years
Total
Certificates of
Deposit
$5,897,172
2,671,236
64,392
10,846
$8,643,646
Long-Term Debt (1)
$ 4,173,500
7,781,000
600,000
359,179
$12,913,679
Operating
Leases
$ 29,786
46,636
16,523
66,555
$159,500
Total
$10,100,458
10,498,872
680,915
436,580
$21,716,825
(1) Includes FHLB advances, repurchase agreements, and junior subordinated debentures.
At December 31, 2017, we also had commitments to extend credit in the form of mortgage and other loan
originations, as well as commercial, performance stand-by, and financial stand-by letters of credit, totaling
$2.3 billion. 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 the payment of a fee.
63
The following table summarizes our off-balance sheet commitments to extend credit in the form of loans and
letters of credit at December 31, 2017:
(in thousands)
Mortgage Loan Commitments:
Multi-family and commercial real estate
One-to-four family
Acquisition, development, and construction
Total mortgage loan commitments
Other loan commitments (1)
Total loan commitments
Commercial, performance stand-by, and financial stand-by
letters of credit
Total commitments
(1) Includes unadvanced lines of credit.
$ 377,782
3,819
239,504
$ 621,105
1,314,170
$1,935,275
339,403
$2,274,678
Of the total loan commitments noted in the preceding table, all $1.9 billion were for loans held for investment.
Based upon our current liquidity position, we expect that our funding will be sufficient to fulfill these obligations
and commitments when they are due.
At December 31, 2017, we had commitments to purchase GNMA securities of $29.4 million.
Derivative Financial Instruments
We used various financial instruments, including derivatives, in connection with our strategies to mitigate or
reduce our exposure to losses from adverse changes in interest rates. Our derivative financial instruments consisted of
financial forward and futures contracts, interest rate lock commitments (“IRLCs”), swaps, and options, and related to
our mortgage banking operations, MSRs, and other related risk management activities. 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, 2017, we held no derivative financial instruments. (See Note 15, “Derivative Financial
Instruments,” in Item 8, “Financial Statements and Supplementary Data” for a further discussion of our use of such
financial instruments.)
Capital Position
On March 17, 2017, we issued 515,000 shares of preferred stock. The offering generated capital of
$502.8 million, net of underwriting and other issuance costs, for general corporate purposes, with the bulk of the
proceeds being distributed to the Community Bank.
Total stockholders’ equity rose $671.4 million, or 11.0%, year-over-year to $6.8 billion; common stockholders’
equity represented 12.81% of total assets and a book value per common share of $12.88 at December 31, 2017. At the
prior year-end, total stockholders’ equity totaled $6.1 billion, and common stockholders’ equity represented 12.52%
of total assets and a book value per common share of $12.57.
Tangible common stockholders’ equity rose $168.8 million year-over-year to $3.9 billion, after the distribution
of four quarterly cash dividends totaling $332.1 million. The year-end 2017 balance represented 8.26% of tangible
common assets and a tangible common book value per common share of $7.89. At the prior year-end, tangible
common stockholders’ equity totaled $3.7 billion, representing 7.93% of tangible common assets and a tangible
common book value per common share of $7.57.
We calculate tangible common stockholders’ equity by subtracting the amount of goodwill, CDI, and preferred
stock recorded at the end of a period from the amount of stockholders’ equity recorded at the same date. While
goodwill totaled $2.4 billion at December 31, 2017 and 2016, CDI was zero and $208,000 at the corresponding dates.
Preferred stock was $502.8 million at the end of 2017. The Company had no preferred stock in 2016. (See the
discussion and reconciliations of stockholders’ equity and tangible common stockholders’ equity, total assets and
tangible assets, and the related financial measures that appear on the last page of this discussion and analysis of our
financial condition and results of operations.)
64
Stockholders’ equity and tangible common stockholders’ equity both include accumulated other comprehensive
loss (“AOCL”), which is comprised of the net unrealized gain or loss on available-for-sale securities; the net unrealized
loss on the non-credit portion of OTTI securities; and the Company’s pension and post-retirement obligations at the
end of a period. In the twelve months ended December 31, 2017 and 2016, AOCL totaled $15.2 million and
$56.7 million, respectively. The decline in AOCL was largely the net effect of a $1.6 million decrease in net pension
and post-retirement obligations to $49.1 million and the $39.9 million difference between the net unrealized loss on
securities available for sale recorded at the end of this December and the net unrealized gain on securities available
for sale recorded at December 31, 2016.
As reflected in the following table, our capital measures continued to exceed the minimum federal requirements
for a bank holding company at December 31, 2017 and 2016:
At December 31, 2017
(dollars in thousands)
Common equity tier 1 capital
Tier 1 risk-based capital
Total risk-based capital
Leverage capital
At December 31, 2016
(dollars in thousands)
Common equity tier 1 capital
Tier 1 risk-based capital
Total risk-based capital
Leverage capital
Actual
Minimum
Amount
$3,869,129
4,371,969
4,877,208
4,371,969
Ratio
Required Ratio
11.36 %
12.84
14.32
9.58
4.50 %
6.00
8.00
4.00
Actual
Minimum
Amount
$3,748,231
3,748,231
4,277,759
3,748,231
Ratio
Required Ratio
10.62 %
10.62
12.12
8.00
4.50 %
6.00
8.00
4.00
At December 31, 2017, the capital ratios for the Company, the Community Bank, and the Commercial Bank
continued to exceed the levels required for classification as “well capitalized” institutions, as defined under the Federal
Deposit Insurance Corporation Improvement Act of 1991, and as further discussed in Note 18, “Capital,” in Item 8,
“Financial Statements and Supplementary Data.”
RESULTS OF OPERATIONS: 2017 AS COMPARED TO 2016
Earnings Summary
For the twelve months ended December 31, 2017, the Company reported diluted earnings per common share of
$0.90, as compared to diluted earnings per common share of $1.01 for the twelve months ended December 31, 2016,
a decrease of 11%. Net income available to common shareholders totaled $441.6 million in 2017 as compared to
$495.4 million in 2016, also down 11%. Net income for 2017 was $466.2 million, down 6% from 2016.
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 federal funds
rate (the rate at which banks borrow funds overnight from one another) as it deems necessary. In 2017, the FOMC
increased the target federal funds rate three times for a total of 75 basis points, to a target range of 1.25% to 1.50%.
While the target federal 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. In 2017, the five-year CMT ranged from a low of 1.63% to a high of 2.26% with an average rate
of 1.91% for the year. In 2016, the five-year CMT ranged from a low of 0.94% to a high of 2.40% with an average
rate of 1.33% for the year.
65
Another factor that impacts the yields on our interest-earning assets—and our net interest income—is the income
generated by our multi-family and CRE loans and securities when they prepay. Since prepayment income is recorded
as interest income, an increase or decrease in its level will also be reflected in the average yields (as applicable) on
our loans, securities, and interest-earning assets, and therefore in our net interest income, our net interest rate spread,
and our net interest margin.
It should be noted that the level of prepayment income on loans 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
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.
In 2017, net interest income decreased 12% to $1.1 billion as compared to $1.3 billion in 2016. Similar to the
fourth quarter 2017 trends, the decline in the full-year 2017 net interest income was driven by a 17% increase in
interest expense due to higher funding costs.
Year-Over-Year Comparison
The following factors contributed to the year-over-year reduction in net interest income:
•
Interest income fell $92.6 million year-over-year as a $37.8 million decline in interest income from
securities and money market investments was coupled with a $54.8 million decline in interest income from
loans.
• The decline in interest income from loans was largely due to a $676.3 million decline in the average balance
and an eight-basis point decline in the average yield. In addition, prepayment income contributed
$47.0 million to the interest income from loans and 12 basis points to the average yield on such assets
compared to $60.9 million and 16 basis points in 2016.
• The year-over-year reduction in interest income from securities was driven by a $936.0 million decrease in
the average balance, coupled with a 40-basis point drop in the average yield.
• As a result, the average balance of interest-earning assets declined $396.5 million from the year-earlier
level and the average yield fell 18 basis points.
•
Interest expense rose $64.7 million year-over-year as interest expense on deposits rose $58.8 million and
the interest expense on borrowed funds rose $6.0 million.
• The year-over-year rise in interest expense stemming from deposits was due to a 23-basis point rise in the
average cost of such funds due to higher short-term interest rates, offset by a $14.5 million decrease in the
average balance. Additionally, the average balance of lower cost deposits such as savings accounts, interest-
bearing checking and money market accounts declined, while the average balance of higher cost CDs
increased by $1.3 billion.
• The increase in the interest income from borrowed funds was driven by a 19-basis point rise in the average
cost of such funding and mitigated by a $1.2 billion decline in the average balance from the year-earlier
amount.
• As a result, the average balance of interest-bearing liabilities fell $1.2 billion and the average cost of funds
rose 20 basis points year-over-year.
66
Net Interest Margin
The direction of the Company’s net interest margin was consistent with that of its net interest income, and
generally was driven by the same factors as those described above. At 2.59%, the margin was 34-basis points narrower
than the margin recorded for full-year 2016. The reduction was due, in part, to a decline in prepayment income from
the levels recorded in the prior year, as reflected in the table below. Adjusted net interest margin is a non-GAAP
financial measure, as more fully discussed below.
For the Twelve Months Ended
Dec. 31,
2017
Dec. 31,
2016
Change (%)
(dollars in thousands)
Total Interest Income
$1,582,239
$1,674,869
-6%
Prepayment Income:
Loans
Securities
Total prepayment income
GAAP Net Interest Margin
Less:
Prepayment income from loans
Prepayment income from securities
Total prepayment income contribution
to net interest margin
$47,004
8,130
$55,134
$60,891
33,509
$94,400
-23%
-76%
-42%
2.59%
2.93%
-34 bp
bp
11
2
bp
14
8
13
bp
22
bp
-3 bp
-6 bp
-9 bp
Adjusted Net Interest Margin (non-GAAP)
2.46%
2.71%
-25 bp
RECONCILIATION OF NET INTEREST MARGIN AND ADJUSTED NET INTEREST MARGIN
While our net interest margin, including the contribution of prepayment income, is recorded in accordance with
GAAP, adjusted net interest margin, which excludes the contribution of prepayment income, is not. Nevertheless,
management uses this non-GAAP measure in its analysis of our performance, and believes that this non-GAAP
measure should be disclosed in this report and other investor communications for the following reasons:
1. Adjusted net interest margin gives investors a better understanding of the effect of prepayment income on
our net interest margin. Prepayment income in any given period depends on the volume of loans that
refinance or prepay, or securities that prepay, during that period. Such activity is largely dependent on
external factors such as current market conditions, including real estate values, and the perceived or actual
direction of market interest rates.
2. Adjusted net interest margin is among the measures considered by current and prospective investors, both
independent of, and in comparison with, our peers.
Adjusted net interest margin should not be considered in isolation or as a substitute for net interest margin,
which is calculated in accordance with GAAP. Moreover, the manner in which we calculate this non-GAAP measure
may differ from that of other companies reporting a non-GAAP measure with a similar name.
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.
67
Net Interest Income Analysis
(dollars in thousands)
ASSETS:
Interest-earning assets:
2017
For the Years Ended December 31,
2016
Average
Balance
Interest
Average
Yield/
Cost
Average
Balance
Interest
Average
Yield/
Cost
Average
Balance
2015
Interest
Mortgage and other loans, net (1)
Securities and money market investments (2)(3)
Total interest-earning assets
Non-interest-earning assets
Total assets
$38,400,003 $1,417,237
165,002
1,582,239
5,213,859
43,613,862
5,011,020
$48,624,882
3.69 %
3.16
3.63
$39,076,298 $1,472,020
202,849
1,674,869
4,934,058
44,010,356
5,289,245
$49,299,601
3.77 % $36,343,407 $1,441,462
250,122
7,278,562
4.11
43,621,969
1,691,584
3.81
5,248,236
$48,870,205
LIABILITIES AND STOCKHOLDERS’ EQUITY:
Interest-bearing liabilities:
Interest-bearing checking 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
$12,787,703 $ 98,980
28,447
102,355
229,782
222,454
452,236
5,170,342
8,164,518
26,122,563
12,836,919
38,959,482
2,782,155
279,466
42,021,103
6,603,779
$48,624,882
$1,130,003
0.77 %
0.55
1.25
0.88
1.73
1.16
2.47 %
2.59 %
1.12 x
$13,322,346 $ 62,166
31,982
76,875
171,023
216,464
387,487
5,915,020
6,899,706
26,137,072
14,059,543
40,196,615
2,860,532
190,403
43,247,550
6,052,051
$49,299,601
$1,287,382
0.47 % $12,674,236 $ 46,467
50,776
7,546,417
0.54
62,906
5,698,437
1.11
160,149
25,919,090
0.65
1,123,360 (4)
14,275,818
1.54
40,194,908
1,283,509 (5)
0.96
2,660,220
201,441
43,056,569
5,813,636
$48,870,205
2.85 %
2.93 %
1.09 x
$408,075 (6)
0.69 % (6)
0.94 % (7)
1.09 x
(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.
(4) The debt repositioning charge accounted for $773.8 million of the interest expense on borrowed funds and for 542 basis points of the average cost in 2015.
(5) The debt repositioning charge accounted for $773.8 million of the interest expense on average interest-bearing liabilities and for 192 basis points of the average cost in 2015.
(6) The debt repositioning charge reduced our 2015 net interest income by $773.8 million and our net interest rate spread by 192 basis points.
(7) The debt repositioning charge reduced our 2015 net interest margin by 177 basis points.
68
Average
Yield/
Cost
3.97 %
3.44
3.88
0.37 %
0.67
1.10
0.62
7.87 (4)
3.19 (5)
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 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.
Rate/Volume Analysis
Year Ended
December 31, 2017
Compared to Year Ended
December 31, 2016
Increase/(Decrease)
Due to
Year Ended
December 31, 2016
Compared to Year Ended
December 31, 2015
Increase/(Decrease)
Due to
Volume
Rate
Net
Volume
Rate
Net
$ (25,239 ) $ (29,544 ) $ (54,783 )
(37,847 )
(92,630 )
12,369
(50,216 )
(12,870 ) (79,760 )
$
92,003 $ (61,445 ) $ 30,558
(47,273)
73,818
(16,715)
12,373
(121,091 )
(29,088 )
$ (2,388 ) $ 39,202 $ 36,814
$
2,478 $ 13,221 $ 15,699
574
(4,109 )
15,141
10,339
(13,498 ) 19,488
(4,854 ) 69,603
(3,535 )
25,480
5,990
64,749
$ (8,016 ) $ (149,363 ) $ (157,379 )
(9,847 )
13,379
(16,766 )
(10,756 )
(18,794)
13,969
(906,896)
(896,022)
$ (18,332 ) $ 897,639 $ 879,307
(8,947 )
590
(890,130 )
(885,266 )
(in thousands)
INTEREST-EARNING ASSETS:
Mortgage and other loans, net
Securities and money market investments
Total
INTEREST-BEARING LIABILITIES:
Interest-bearing checking and money
market accounts
Savings accounts
Certificates of deposit
Borrowed funds
Total
Change in net interest income
Provision for (Recoveries of) Loan Losses
Provision for (Recovery of) Losses on Non-Covered Loans
The provision for losses on non-covered loans, like the recovery of non-covered loan losses, is based on the
methodology used by management in calculating the allowance for losses on such loans. Reflecting this methodology,
which is discussed in detail under “Critical Accounting Policies” earlier in this report. For the twelve months ended
December 31, 2017, the Company reported a $60.9 million provision for losses on non-covered loans as compared to
$11.9 million for the twelve months ended December 31, 2016. The year-over-year increase was related to the
aforementioned taxi medallion-related charge-offs during the third quarter of 2017.
Reflecting the 2017 provision and twelve-month net charge-offs of $61.2 million, the allowance for losses on
non-covered loans of $158.0 million was relatively unchanged at the end of this December compared to $158.3 million
at the prior year-end.
Recovery of Losses on Covered Loans
For full-year 2017, the Company recovered $23.7 million on certain pools of acquired loans covered by FDIC
loss-sharing agreements, as compared to $7.7 million for full-year 2016. The recoveries recorded in the respective
years were largely offset by FDIC indemnification expense of $19.0 million and $6.2 million recorded in “Non-
interest income.”
On July 28, 2017, the Company completed the sale of its covered loans to an affiliate of Cerberus. Accordingly,
at December 31, 2017, the Company no longer had any covered loans and related FDIC loss share receivable on its
balance sheet.
For additional information about our methodologies for recording recoveries of, and provisions for, loan losses,
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.
Non-Interest Income
We generate non-interest income through a variety of sources, including—among others—fee income (in the
form of retail deposit fees and charges on loans); income from our investment in BOLI; gains on sales of securities;
69
and “other” sources, including the revenues produced through the sale of third-party investment products and those
produced through our subsidiary, Peter B. Cannell & Co., Inc. (“PBC”), an investment advisory firm.
Non-interest income increased $71.3 million year-over-year to $216.9 million in the twelve months ended
December 31, 2017. The increase was primarily attributable to the following factors:
• An $82.0 million gain on the sale of our covered loans and mortgage banking operations.
• A $26.6 million increase in the net gain on sale of securities. This was due to the previously mentioned
securities portfolio repositioning and subsequent sale of securities during the second quarter.
• Mortgage banking income fell $7.9 million year-over-year to $19.3 million, as we exited this line of
business in the third quarter of the year.
• Other non-interest income increased to $44.5 million in the twelve months ended December 31, 2017 from
$41.6 million in the twelve months ended December 31, 2016.
• The net gain on sales of loans, primarily through participations, fell $14.7 million year-over-year to
$1.2 million.
Non-Interest Income Analysis
The following table summarizes our sources of non-interest income in the twelve months ended December 31,
2017, 2016, and 2015:
(in thousands)
Mortgage banking income
Fee income
BOLI income
Net gain on sales of loans
Net gain on sales of securities
FDIC indemnification expense
Gain on sale of covered loans and
mortgage banking operations
Other income:
Peter B. Cannell & Co., Inc.
Third-party investment product sales
Recovery of OTTI securities
Other
Total other income
Total non-interest income
Non-Interest Expense
For the Years Ended December 31,
2016
2015
2017
$ 19,337
31,759
27,133
1,156
29,924
(18,961 )
$ 27,281 $ 54,113
34,058
27,541
26,133
4,054
(9,336 )
32,665
31,015
15,806
3,347
(6,155 )
82,026
--
--
22,026
12,771
1,120
8,589
44,506
$216,880
22,537
11,658
1,214
6,204
41,613
26,771
13,292
242
33,895
74,200
$145,572 $210,763
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.
Non-interest expense totaled $641.4 million in the twelve months ended December 31, 2017, as compared to
$651.6 million in the year-earlier twelve-month period. While non-interest expense declined year-over-year, operating
expenses increased modestly to $641.2 million from $638.1 million in 2016.
Compensation and benefits expense accounted for $9.5 million of the year-over-year increase, having grown to
$361.0 million in 2017. The increase was driven by a combination of factors, including an increase in stock-based
compensation expense, normal salary increases, and the addition of senior level staff in various departments. This was
offset by a $6.9 million decline in G&A expense to $181.3 million, primarily reflecting a $3.8 million decrease in
FDIC deposit insurance premiums to $57.3 million.
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 operate our branches and/or conduct our mortgage banking business.
70
In the twelve months ended December 31, 2017, we recorded income tax expense of $202.0 million, reflecting
pre-tax income of $668.2 million and an effective tax rate of 30.2%. The decrease in both the effective tax rate and
income tax expense was due to the recently enacted Tax Cuts and Jobs Act. This resulted in the Company recording
a one-time net benefit during the fourth quarter of the year, to income tax expense of $42 million, including that
portion related to the re-measurement of our net deferred tax liabilities. Our effective income tax rate in 2018 is
expected to be approximately 26.5%.
RESULTS OF OPERATIONS: 2016 AS COMPARED TO 2015
Earnings Summary
In the twelve months ended December 31, 2016, we generated earnings of $495.4 million, or $1.01 per diluted
share, representing a 1.00% return on average assets and an 8.19% return on average stockholders’ equity.
In the twelve months ended December 31, 2015, we recorded a net loss of $47.2 million, or $0.11 per diluted
share. The net loss was attributable to a debt repositioning charge incurred in the fourth quarter in connection with the
prepayment of $10.4 billion of wholesale borrowings. On a pre-tax basis, the charge was $915.0 million; on an after-
tax basis, the charge was $546.8 million, or $1.17 per diluted share. In accordance with ASC 470-50, $773.8 million
of the pre-tax charge was recorded as interest expense and $141.2 million was recorded as non-interest expense.
The benefit of the debt repositioning is reflected in our 2016 Consolidated Results of Operations, including the
interest expense on, and average cost of, borrowed funds; the interest expense on, and average cost of, interest-bearing
liabilities; our net interest income; our net interest rate spread; and our net interest margin.
Our 2016 and 2015 results also reflect certain expenses incurred in connection with the Astoria Financial merger
agreement, which was announced on October 29, 2015 and terminated effective January 1, 2017 by mutual agreement
of the companies’ Boards. In 2016, merger-related expenses totaled $11.1 million, as compared to $3.7 million in the
prior year.
Net Interest Income
As the debt repositioning charge had no impact on our interest income or the interest expense stemming from
our interest-bearing deposits in 2015, a comparison of the 2016 and 2015 amounts and measures is provided below:
Interest Income
•
In 2016, interest income fell $16.7 million year-over-year to $1.7 billion, as the benefit of a $30.6 million
increase in the interest income produced by loans was substantially exceeded by the impact of a
$47.3 million decline in the interest income produced by securities and money market investments.
• The increase in the interest income produced by loans was driven by a $2.7 billion rise in the average
balance of such assets to $39.1 billion and tempered by a 20-basis point drop in the average yield to 3.77%.
The increase in interest income on loans was also partly offset by a $36.4 million decline in the contribution
of prepayment income to $60.9 million, and by an 11-basis point decrease in the contribution to the average
yield to 16 basis points.
• The decline in the interest income produced by securities and money market investments was driven by a
$2.3 billion reduction in the average balance of such assets to $4.9 billion, primarily reflecting the
aforementioned high volume of securities calls. As a result of such calls, prepayment income from securities
rose $14.1 million year-over-year to $33.5 million and the contribution of prepayment income to the
average yield on securities and money market investments rose 41 basis points to 68 basis points. Largely
reflecting the increase in prepayment income, the average yield on securities and money market investments
rose 67 basis points to 4.11% year-over-year.
Interest Expense
•
In 2016, the interest expense on interest-bearing deposits rose $10.9 million year-over-year to
$171.0 million, as a $218.0 million rise in the average balance to $26.1 billion was accompanied by a three-
basis point rise in the average cost to 0.65%. While the average balance of savings accounts fell $1.6 billion
year-over-year to $5.9 billion, the decrease was exceeded by the combination of a $1.2 billion rise in CDs
to $6.9 billion and a $648.1 million rise in NOW and money market accounts to $13.3 billion. Similarly,
while the average cost of savings accounts fell 13 basis points year-over-year, the benefit was exceeded by
the impact of a one-basis point rise in the average cost of CDs and a ten-basis point rise in the average cost
of NOW and money market accounts.
71
(Recoveries of) Provision for Losses on Loans
Provision for (Recovery of) Losses on Non-Covered Loans
The provision for losses on non-covered loans, like the recovery of non-covered loan losses, is based on the
methodology used by management in calculating the allowance for losses on such loans. Reflecting this methodology,
which is discussed in detail under “Critical Accounting Policies” earlier in this report, we recorded an $11.9 million
provision for non-covered loan losses in the twelve months ended December 31, 2016 as compared to a $3.3 million
recovery of non-covered loan losses in the twelve months ended December 31, 2015.
Reflecting the 2016 provision and twelve-month net charge-offs of $708,000, the allowance for losses on non-
covered loans rose to $158.3 million at the end of this December from $147.1 million at the prior year-end.
Recovery of Losses on Covered Loans
When an improvement in the credit quality of certain loan portfolios acquired in our FDIC-assisted transactions
leads us to believe that the cash flows from those portfolios will exceed our expectations, we reverse the previously
established covered loan loss allowance by recording a recovery. In accordance with this methodology, we recovered
$7.7 million and $11.7 million, respectively, from the covered loan loss allowance in the twelve months ended
December 31, 2016 and 2015.
Reflecting the recoveries recorded in 2016, the allowance for losses on covered loans fell to $23.7 million from
$31.4 million in the twelve months ended December 31, 2015.
Non-Interest Income
Non-interest income fell $65.2 million year-over-year to $145.6 million in the twelve months ended
December 31, 2016. The reduction was primarily attributable to the following factors:
• Mortgage banking income fell $26.8 million year-over-year to $27.3 million, primarily due to a first-quarter
change in the assumptions used to calculate the value of our MSRs, together with an increase in loan
payments and curtailments.
• Other non-interest income fell to $41.6 million in the twelve months ended December 31, 2016 from
$74.2 million in the twelve months ended December 31, 2015. While certain components of other non-
interest income declined year-over-year, including revenues from PBC and the sale of third-party
investments, the bulk of the year-over-year reduction was due to certain gains recorded in the prior year.
The amount of other non-interest income recorded in 2015 was boosted by the combination of a
$13.3 million gain on the sale of a bank-owned property and a $7.8 million gain on the sale of a multi-
family property that had been classified as OREO. As no comparable gains were recorded in 2016, these
two factors accounted for $21.1 million of the $32.6 million decline in other non-interest income from the
level recorded in 2015.
• The net gain on sales of loans, primarily through participations, fell $10.3 million year-over-year to
$15.8 million.
Non-Interest Expense
Non-interest expense totaled $651.6 million in the twelve months ended December 31, 2016, as compared to
$765.9 million in the year-earlier twelve-month period. Included in the 2015 amount was $141.2 million of the debt
repositioning charge recorded in the fourth quarter; no comparable charge was recorded in 2016.
In addition, merger-related charges accounted for $11.1 million of non-interest expense in 2016, as compared
to $3.7 million in the prior year.
While non-interest expense declined year-over-year, operating expenses rose $22.5 million to $638.1 million
from the level recorded in 2015. Compensation and benefits expense accounted for $8.8 million of the year-over-year
increase, having grown to $351.4 million in 2016. The increase was driven by a combination of factors, including an
increase in medical benefits expense, back-office staff expansion, normal salary increases, and the granting of stock
awards. In addition, G&A expense rose $17.6 million year-over-year to $188.1 million, primarily reflecting a
$14.8 million increase in FDIC deposit insurance premiums to $61.1 million, as well as an increase in legal and
professional fees. These increases, which included fees incurred in connection with our preparations for SIFI status,
were only partly offset by a $3.9 million decrease in occupancy and equipment expense to $98.5 million, primarily
representing an increase in rental income.
72
Income Tax Expense
In the twelve months ended December 31, 2016, we recorded income tax expense of $281.7 million, reflecting
pre-tax income of $777.1 million and an effective tax rate of 36.25%. In the prior year, we recorded an income tax
benefit of $84.9 million as a result of having recorded a $132.0 million pre-tax loss.
QUARTERLY FINANCIAL DATA
The following table sets forth selected unaudited quarterly financial data for the years ended December 31, 2017
and 2016:
2017
2016
(in thousands, except per share data)
Net interest income
Provision for (recoveries of) loan
losses
Non-interest income
Non-interest expense
Income before income taxes
Income tax expense
Net income
Preferred stock dividends
Net income available to common
shareholders
Basic earnings per common share
Diluted earnings per common share
4th
$270,974
2,926
25,343
148,484
144,907
8,386
$136,521
8,207
$128,314
$0.26
$0.26
IMPACT OF INFLATION
3rd
2nd
1st
$276,343 $287,769 $294,917
4th
$315,520
(6,261 )
50,437
44,585
108,928
162,234
178,452
67,984
(4,008 )
32,172
163,765 166,943
180,702 164,154
60,197
$110,468 $115,255 $103,957
--
65,447
8,207
8,207
$102,261 $107,048 $103,957
$0.21
$0.21
$0.22
$0.22
$0.21
$0.21
3,516
32,374
170,602
173,776
60,043
$113,733
--
$113,733
$0.23
$0.23
3rd
2nd
$318,423 $325,573 $327,866
1st
(176 )
895
37,366
160,911
201,133
74,673
(55)
40,595
161,685
197,388
72,089
35,237
158,448
204,831
74,922
$125,299 $126,460 $129,909
--
--
--
$125,299 $126,460 $129,909
$0.27
$0.27
$0.26
$0.26
$0.26
$0.26
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 RECENT ACCOUNTING PRONOUNCEMENTS
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.
RECONCILIATIONS OF STOCKHOLDERS’ EQUITY, COMMON
STOCKHOLDERS’ EQUITY,
AND TANGIBLE COMMON STOCKHOLDERS’ EQUITY; TOTAL ASSETS AND TANGIBLE ASSETS;
AND THE RELATED MEASURES
While stockholders’ equity, common stockholders’ equity, total assets, and book value per common share are
financial measures that are recorded in accordance with U.S. generally accepted accounting principles (“GAAP”),
tangible common stockholders’ equity, tangible assets, and tangible book value per common share are not. It is
management’s belief that these non-GAAP measures should be disclosed in this report and others we issue for the
following reasons:
1. Tangible common stockholders’ equity is an important indication of the Company’s ability to grow
organically and through business combinations, as well as its ability to pay dividends and to engage in various
capital management strategies.
2. Tangible book value per common share and the ratio of tangible common stockholders’ equity to tangible
assets are among the capital measures considered by current and prospective investors, both independent of,
and in comparison with, the Company’s peers.
Tangible common stockholders’ equity, tangible assets, and the related non-GAAP measures should not be
considered in isolation or as a substitute for stockholders’ equity, common stockholders’ equity, total assets, or any
73
other measure calculated in accordance with GAAP. Moreover, the manner in which we calculate these non-GAAP
measures may differ from that of other companies reporting non-GAAP measures with similar names.
Reconciliations of our stockholders’ equity, common stockholders’ equity, and tangible common stockholders’
equity; our total assets and tangible assets; and the related financial measures for the respective periods follow:
(dollars in thousands)
Stockholders’ Equity
Less: Goodwill
Core deposit intangibles
Preferred stock
Tangible common stockholders’ equity
Total Assets
Less: Goodwill
Core deposit intangibles
Tangible assets
Common stockholders’ equity to total assets
Tangible common stockholders’ equity to tangible assets
Book value per common share
Tangible book value per common share
At or for the
Twelve Months Ended
December 31,
2017
$ 6,795,376
(2,436,131)
--
(502,840)
$ 3,856,405
2016
$ 6,123,991
(2,436,131 )
(208 )
--
$ 3,687,652
$49,124,195
(2,436,131)
--
$46,688,064
$48,926,555
(2,436,131 )
(208 )
$46,490,216
12.81%
8.26
$12.88
7.89
12.52 %
7.93
$12.57
7.57
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, in turn, 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 factors with
the most significant impact on prepayments are market interest rates and the availability of refinancing opportunities.
In 2017, we managed our interest rate risk by taking the following actions: (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
increased our portfolio of C&I loans, which feature floating rates; and (3) We extended the maturities of certain short-
term wholesale borrowings.
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.
74
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, 2017, our one-year gap was a negative 19.57%, as compared to a negative 21.37% at
December 31, 2016. The 180-basis point change was primarily due to an increase in cash balances as a result of the
sale of the mortgage banking operations, which was partially offset by a decrease in loans maturing or repricing in
one year and an increase in borrowings maturing in one year.
The table on the following page sets forth the amounts of interest-earning assets and interest-bearing liabilities
outstanding at December 31, 2017 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, 2017 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 5% per annum; for multi-family and CRE loans,
prepayment rates are forecasted at weighted average CPRs of 15% and 8% per annum, 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 incorporated our historical deposit experience.
Based on the results of this analysis, savings accounts were assumed to decay at a rate of 48% for the first five
years and 52% for years six through ten. Interest-bearing checking accounts were assumed to decay at a rate of 70%
for the first five years and 30% for years six through ten. The decay assumptions reflect the prolonged low interest
rate environment and the uncertainty regarding future depositor behavior. Including those accounts having specified
repricing dates, money market accounts were assumed to decay at a rate of 89% for the first five years and 11% for
years six 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 tend to 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.
75
Interest Rate Sensitivity Analysis
(dollars in thousands)
INTEREST-EARNING ASSETS:
Mortgage and other loans (1)
Mortgage-related securities (2)(3)
Other securities (2)
Interest-earning cash and cash equivalents
Total interest-earning assets
INTEREST-BEARING LIABILITES:
Interest-bearing checking 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
Three
Months
or Less
Four to
Twelve
Months
More Than
One Year
to Three Years
At December 31, 2017
More Than
Three Years
to Five Years
More Than
Five Years
to 10 Years
More
Than
10 Years
Total
$ 3,182,859
21,268
978,343
2,373,803
6,556,273
$ 4,729,234
58,354
1,421
--
4,789,009
$16,579,975
385,627
3,869
--
16,969,471
$10,898,656
681,573
15,802
--
11,596,031
$2,845,843
1,226,274
323,106
--
4,395,223
$112,980
245,650
193,959
--
552,589
$38,349,547
2,618,746
1,516,500
2,373,803
44,858,596
7,313,506
1,145,791
2,002,350
1,733,926
12,195,573
$ (5,639,300)
$(5,639,300)
348,915
947,315
4,812,757
2,653,500
8,762,487
$(3,973,478 )
$(9,612,778 )
673,669
234,823
1,759,923
7,781,000
10,449,415
$ 6,520,056
$(3,092,722 )
1,980,433
192,785
59,319
600,000
2,832,537
$ 8,763,494
$5,670,772
2,619,778
2,689,287
9,297
--
5,318,362
$ (923,139)
$4,747,633
--
--
--
145,253
145,253
$407,336
$5,154,969
12,936,301
5,210,001
8,643,646
12,913,679
39,703,627
$ 5,154,969
percentage of total assets
(11..48)%
(19.57 )%
(6.30 )%
11.54 %
9.66%
10.49 %
Cumulative net interest-earning assets as a
percentage of net interest-bearing liabilities
53.76 %
54.13 %
90.15 %
116.56 %
112.00%
112.98 %
(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.
76
As of December 31, 2017, the impact of a 100-basis point decline in market interest rates would have increased
our projected prepayment rates for multi-family and CRE loans by a constant prepayment rate of 14.39% per annum.
Conversely, the impact of a 100-basis point increase in market interest rates would have decreased our projected
prepayment rates for multi-family and CRE loans by a constant prepayment rate of 6.03% per annum.
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 at December 31, 2017, based on the information and assumptions in
effect at that date, and assuming the changes in interest rates noted:
(dollars in thousands)
Change in
Interest Rates
(in basis points) (1)
--
+100
+200
Market Value
of Assets
$49,590,202
48,897,628
48,172,944
Market Value
of Liabilities
$42,154,288
41,901,656
41,666,960
Net Portfolio
Value
$7,435,914
6,995,972
6,505,984
Net Change
$ --
(439,942 )
(929,930 )
Portfolio Market
Value Projected
% Change
to Base
-- %
(5.92 )
(12.51 )
(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 limits 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. Based
on the information and assumptions in effect at December 31, 2017, 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:
77
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
(4.27) %
(7.83)
(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 other changes to our gap, NPV, and/or net
interest income simulation.
In the event that our net interest income and NPV sensitivities were to breach our internal policy limits, we
would undertake the following actions to ensure that appropriate remedial measures were put in place:
• Our Asset and Liability Management 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.
•
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 interest rate
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:
• 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;
• 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
• Use or alteration of off-balance sheet positions, including interest rate swaps, caps, floors, options, and
forward-purchase or sales commitments.
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, 2017, our analysis indicated that an immediate inversion of the yield curve
would be expected to result in a 2.54% decrease in net interest income; conversely, an immediate steepening of the
yield curve would be expected to result in a 2.99% increase.
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Our Consolidated Financial Statements and Notes thereto and other supplementary data begin on the following
page.
78
NEW YORK COMMUNITY BANCORP, INC.
CONSOLIDATED STATEMENTS OF CONDITION
December 31,
2017
2016
$ 2,528,169 $ 557,850
(in thousands, except share data)
ASSETS:
Cash and cash equivalents
Securities:
Available for sale ($1,263,227 pledged at December 31, 2017)
Held-to-maturity ($1,930,533 pledged at December 31, 2016) (fair value of $3,813,959 at December 31,
3,531,427
104,281
2016)
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 ($2,729 and $228,099 measured at fair value at December 31, 2017 and 2016,
respectively)
Bank-owned life insurance
Other real estate owned and other repossessed assets ($16,990 covered by loss sharing agreements at
December 31, 2016)
Other assets
Total assets
LIABILITIES AND STOCKHOLDERS’ EQUITY:
Deposits:
Interest-bearing checking 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
Federal funds purchased
Total wholesale borrowings
Junior subordinated debentures
Total borrowed funds
Other liabilities
Total liabilities
Stockholders’ equity:
Preferred stock at par $0.01 (5,000,000 shares authorized): Series A (515,000 shares issued and
outstanding)
Common stock at par $0.01 (900,000,000 shares authorized; 489,072,101 and 487,067,889 shares issued,
and 488,490,352 and 487,056,676 shares outstanding, respectively)
Paid-in capital in excess of par
Retained earnings
Treasury stock, at cost (581,749 and 11,213 shares, respectively)
Accumulated other comprehensive loss, net of tax:
Net unrealized gain (loss) on securities available for sale, net of tax of $(27,961) and $534, respectively
Net unrealized loss on the non-credit portion of other-than-temporary impairment
(“OTTI”) losses on securities, net of tax of $3,338 and $3,351, respectively
Net unrealized loss on pension and post-retirement obligations, net of tax of $32,121 and
$34,355, respectively
Total accumulated other comprehensive loss, net of tax
Total stockholders’ equity
Total liabilities and stockholders’ equity
See accompanying notes to the consolidated financial statements.
79
--
3,531,427
35,258
38,387,971
(158,046 )
38,229,925
--
--
--
38,265,183
603,819
368,655
--
2,436,131
--
3,712,776
3,817,057
409,152
37,382,722
(158,290)
37,224,432
1,698,133
(23,701)
1,674,432
39,308,016
590,934
373,675
243,686
2,436,131
208
6,100
967,173
233,961
949,026
16,400
401,138
$49,124,195
28,598
387,413
$48,926,555
$12,936,301
5,210,001
8,643,646
2,312,215
29,102,163
$13,395,080
5,280,374
7,577,170
2,635,279
28,887,903
12,104,500
450,000
--
12,554,500
359,179
12,913,679
312,977
42,328,819
11,664,500
1,500,000
150,000
13,314,500
358,879
13,673,379
241,282
42,802,564
502,840
--
4,891
6,072,559
237,868
(7,615 )
4,871
6,047,558
128,435
(160 )
39,188
(753 )
(5,221 )
(5,241 )
(49,134 )
(15,167 )
6,795,376
$49,124,195
(50,719 )
(56,713 )
6,123,991
$48,926,555
NEW YORK COMMUNITY BANCORP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(in thousands, except per share data)
INTEREST INCOME:
Mortgage and other loans
Securities and money market investments
Total interest income
INTEREST EXPENSE:
Interest-bearing checking and money market accounts
Savings accounts
Certificates of deposit
Borrowed funds
Total interest expense
Net interest income
Provision for (recovery of) losses on non-covered loans
Recovery of losses on covered loans
Net interest income after provision for (recovery of) loan losses
NON-INTEREST INCOME:
Fee income
Bank-owned life insurance
Mortgage banking income
Net gain on sales of loans
Net gain on sales of securities
FDIC indemnification expense
Gain on sale of covered loans and mortgage banking operations
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
Debt repositioning charge
Merger-related expenses
Total non-interest expense
Income (loss) before income taxes
Income tax expense (benefit)
Net income (loss)
Preferred stock dividends
Net income (loss) available to common shareholders
Basic earnings (loss) per common share
Diluted earnings (loss) per common share
Net income (loss)
Other comprehensive income (loss), net of tax:
Change in net unrealized gain (loss) on securities available for sale,
net of tax of $29,740; $1,560; and $437, respectively
Change in the non-credit portion of OTTI losses recognized in
other comprehensive income (loss), net of tax of $13; $49; and
$44, respectively
Change in pension and post-retirement obligations, net of tax of
$2,234; $2,924; and $1,161, respectively
Less: Reclassification adjustment for sales of available-for-sale
securities, net of tax of $1,245; $1,127; and $306, respectively
Total other comprehensive income (loss), net of tax
Total comprehensive income (loss), net of tax
See accompanying notes to the consolidated financial statements.
80
Years Ended December 31,
2016
2017
2015
$1,417,237 $1,472,020 $1,441,462
250,122
1,691,584
165,002
1,582,239
202,849
1,674,869
98,980
28,447
102,355
222,454
452,236
1,130,003
60,943
(23,701 )
1,092,761
62,166
31,982
76,875
216,464
387,487
1,287,382
11,874
(7,694 )
1,283,202
46,467
50,776
62,906
1,123,360
1,283,509
408,075
(3,334 )
(11,670 )
423,079
31,759
27,133
19,337
1,156
29,924
(18,961 )
82,026
44,506
216,880
32,665
31,015
27,281
15,806
3,347
(6,155 )
--
41,613
145,572
34,058
27,541
54,113
26,133
4,054
(9,336 )
--
74,200
210,763
360,985
98,963
181,270
641,218
208
--
--
641,426
668,215
202,014
351,436
98,543
188,130
638,109
2,391
--
11,146
651,646
777,128
281,727
$ 466,201 $ 495,401
--
$ 441,580 $ 495,401
$1.01
$1.01
$0.90
$0.90
24,621
342,624
102,435
170,541
615,600
5,344
141,209
3,702
765,855
(132,013 )
(84,857 )
$ (47,156 )
--
$ (47,156 )
$(0.11 )
$(0.11 )
$ 466,201 $ 495,401
$ (47,156 )
41,684
(2,207 )
475
20
77
69
1,585
4,015
(1,445 )
(1,743 )
41,546
(1,577 )
308
$ 507,747 $ 495,709
(434 )
(1,335 )
$ (48,491 )
NEW YORK COMMUNITY BANCORP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(in thousands, except share data)
PREFERRED STOCK (Par Value: $0.01):
Balance at beginning of year
Issuance of preferred stock (515,000 shares)
Balance at end of year
Years Ended December 31,
2016
2017
2015
$ --
502,840
502,840
$ -- $ --
--
--
--
--
COMMON STOCK (Par Value: $0.01):
Balance at beginning of year
Shares issued for restricted stock awards (2,004,212; 2,099,865; and 1,683,564,
respectively)
Shares issued in follow-on common stock offering (40,625,000 shares)
Balance at end of year
4,871
4,850
4, 427
20
--
4,891
21
--
4,871
17
406
4,850
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
Proceeds from follow-on common stock offering, net
Tax effect of stock plans
Balance at end of year
RETAINED EARNINGS (ACCUMULATED DEFICIT):
Balance at beginning of year
Net income (loss)
Dividends paid on common stock ($0.68; $0.68; and $1.00 per share)
Dividends paid on preferred stock ($47.81 per share)
Effect of adopting Accounting Standards Update (“ASU”) No. 2016-09 (1)
Balance at end of year
TREASURY STOCK:
Balance at beginning of year
Purchase of common stock (1,284,373; 566,584; and 448,223 shares,
respectively)
Shares issued for restricted stock awards (713,837; 580,087; and 495,777 shares,
respectively)
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
6,047,558
(11,028 )
36,029
--
--
6,072,559
6,023,882
(8,985 )
32,661
--
--
6,047,558
5,369,623
(7,708 )
30,205
629,276
2,486
6,023,882
128,435
466,201
(332,147 )
(24,621 )
--
237,868
(36,568 )
495,401
(330,810 )
--
412
128,435
464,569
(47,156 )
(453,981 )
--
--
(36,568 )
(160 )
(447 )
(1,118 )
(18,463 )
(8,677 )
(7,020 )
11,008
(7,615 )
8,964
(160 )
7,691
(447 )
(56,713 )
41,546
(15,167 )
(55,686)
(1,335)
(57,021)
$6,795,376 $6,123,991 $5,934,696
(57,021 )
308
(56,713 )
(1) See Note 2, “Summary of Significant Accounting Policies” for a discussion of the Company’s adoption of Accounting
Standards Update No. 2016-09.
See accompanying notes to the consolidated financial statements.
81
NEW YORK COMMUNITY BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)
Adjustments to reconcile net income (loss) to net cash provided by (used in)
Years Ended December 31,
2016
2017
2015
$ 466,201
$ 495,401
$ (47,156)
operating activities:
Provision for (recoveries of) loan losses
Depreciation and amortization
Amortization of discounts and premiums, net
Amortization of core deposit intangibles
Net gain on sales of securities
Gain on trading securities activity
Net gain on sales of loans
Stock-based compensation
Deferred tax expense (benefit)
Changes in operating assets and liabilities:
Decrease (increase) in other assets
Increase (decrease) in other liabilities
Purchases of securities held for trading
Proceeds from sales of securities held for trading
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 sales of securities held to maturity
Proceeds from sales of securities available for sale
Purchases of securities held to maturity
Purchases of securities available for sale
Redemption of Federal Home Loan Bank stock
Purchases of Federal Home Loan Bank stock
Proceeds from sales of loans
Other changes in loans, net
Purchase of premises and equipment, net
Net cash provided by (used in) investing activities
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits
Net (decrease) increase in short-term borrowed funds
Proceeds from long-term borrowed funds
Repayments of long-term borrowed funds
Tax effect of stock plans (1)
Net proceeds from issuance of preferred stock
Proceeds received from follow-on common stock offering, net
Cash dividends paid on common stock
Cash dividends paid on preferred stock
Payments relating to treasury shares received for restricted stock award
tax payments (1)
Net cash (used in) provided by 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
Cash paid for prepayment penalties on borrowings
Non-cash investing and financing activities:
Transfers to other real estate owned from loans
Transfer of loans from held for investment to held for sale
Transfer of loans from held for sale to held for investment
Shares issued for restricted stock awards
Securities transferred from held to maturity to available for sale
37,242
32,803
(4,555 )
208
(29,924 )
(316 )
(87,301 )
36,029
21,444
451,873
23,329
(202,450 )
202,766
(1,674,123 )
2,053,484
1,326,710
175,375
387,772
547,925
453,878
(13,030 )
(1,163,043 )
90,909
(103,794 )
2,289,377
(1,575,846 )
(27,783 )
1,061,740
214,260
(460,000 )
3,000,000
(3,300,000 )
--
502,840
--
(332,147 )
(24,621 )
4,180
32,811
(26,258 )
2,391
(3,347 )
--
(57,398 )
32,661
44,746
326,790
(4,336 )
--
--
(4,646,773 )
4,554,785
755,653
2,499,205
50,192
1,297
322,038
(213,208 )
(279,402 )
601,941
(528,904 )
1,675,550
(2,826,365 )
(84,179 )
1,218,165
461,145
(3,256,300 )
1,181,000
--
--
--
--
(330,810 )
--
(15,004 )
31,497
(8,069 )
5,344
(4,054 )
--
(65,649 )
30,205
(31,289 )
(196,899 )
15,425
--
--
(4,680,243 )
4,545,466
(420,426 )
940,580
9,889
44,104
278,689
(20,021 )
(318,027 )
623,189
(771,833 )
1,923,208
(4,072,135 )
(34,802 )
(1,397,159 )
98,024
768,100
11,243,500
(10,489,682 )
2,486
--
629,682
(453,981 )
--
(18,463 )
(418,131 )
1,970,319
557,850
$ 2,528,169
(8,677 )
(1,953,642 )
20,176
537,674
$ 557,850
(7,020 )
1,791,109
(26,476 )
564,150
$ 537,674
$447,476
217,682
--
$ 9,973
1,910,121
--
11,028
3,040,305
$382,135
180,238
--
$ 20,099
1,659,743
--
8,985
--
$540,818
187,608
914,965
$ 47,096
1,897,075
153,578
7,708
--
(1) See Note 2, “Summary of Significant Accounting Policies” for a discussion of the Company’s adoption of Accounting
Standards Update No. 2016-09.
See accompanying notes to the consolidated financial statements.
82
NOTE 1: ORGANIZATION AND BASIS OF PRESENTATION
Organization
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”). 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, which was formerly known as Queens
County Bancorp, Inc. 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 ($0.93 per share on a split-adjusted basis, reflecting the impact of nine stock splits
between 1994 and 2004). The Commercial Bank was established on December 30, 2005.
Reflecting its growth through acquisitions, the Community Bank currently operates 225 branches, two of which
operate directly under the Community Bank name. The remaining 223 Community Bank branches operate through
seven divisional banks: Queens County Savings Bank, Roslyn Savings Bank, Richmond County Savings Bank, and
Roosevelt Savings Bank in New York; Garden State Community Bank in New Jersey; AmTrust Bank in Florida and
Arizona; and Ohio Savings Bank in Ohio.
The Commercial Bank currently operates 30 branches in Manhattan, Queens, Brooklyn, Westchester County,
and Long Island (all in New York), including 18 branches that operate under the name “Atlantic Bank.”
Basis of Presentation
The following is a description of the significant accounting and reporting policies that the Company and its
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 evaluation of goodwill for impairment; and the evaluation of the
need for a valuation allowance on the Company’s deferred tax assets.
The accompanying consolidated financial statements include the accounts of the Company and other entities in
which the Company has a controlling financial interest. All inter-company accounts and transactions are eliminated
in consolidation. The Company currently has certain unconsolidated subsidiaries in the form of wholly-owned
statutory business trusts, which were formed to issue guaranteed capital securities (“capital securities”). See Note 8,
“Borrowed Funds,” for additional information regarding these trusts.
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. At December 31,
2017 and 2016, the Company’s cash and cash equivalents totaled $2.5 billion and $557.9 million, respectively.
Included in cash and cash equivalents at those dates were $2.1 billion and $138.6 million, respectively, 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, 2017 and 2016 were federal funds sold of
$3.1 million and $6.8 million, respectively. In addition, the Company had $250.0 million in pledged reverse
repurchase agreements outstanding at December 31, 2017 and 2016.
In accordance with the monetary policy of the Board of Governors of the Federal Reserve System (the “FRB”),
the Company was required to maintain total reserves with the Federal Reserve Bank of New York of $763.4 million
and $162.1 million, respectively, at December 31, 2017 and 2016, in the form of deposits and vault cash. The
Company was in compliance with this requirement at both dates.
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Securities Available for Sale and Held to Maturity
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 the Company has the intent and ability to hold to maturity are classified as
“held to maturity” and carried at amortized cost, less the non-credit portion of other-than-temporary impairment
(“OTTI”) recorded in accumulated other comprehensive loss (“AOCL”), net of tax.
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 such 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 of 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 requires judgment as to the financial
position and future prospects of the entity that issued the investment security, as well as a review of the security’s
underlying collateral. Broad changes in the overall market or interest rate environment generally will not lead to a
write-down.
In accordance with OTTI accounting guidance, unless we have the intent to sell, or it is more likely than not
that we may be required to sell a security before recovery, OTTI is recognized as a realized loss in earnings to the
extent that the decline in fair value is credit-related. If there is a decline in fair value of a security below its carrying
amount and we have the intent to sell it, or it is more likely than not that we may be required to sell the security before
recovery, the entire amount of the decline in fair value is charged to earnings.
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 FHLB of New York (the “FHLB-NY”), the Company is required to hold shares of FHLB-
NY stock, which is carried at cost. The Company’s holding requirement varies based on certain factors, including its
outstanding borrowings from the FHLB-NY.
The Company conducts a periodic review and evaluation of its FHLB-NY stock to determine if any impairment
exists. The factors considered in this process include, among others, significant deterioration in FHLB-NY earnings
performance, credit rating, or asset quality; significant adverse changes in the regulatory or economic environment;
and other factors that could raise significant concerns about the creditworthiness and the ability of the FHLB-NY to
continue as a going concern.
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 allowances for loan losses.
On June 27, 2017, the Company entered into an agreement to sell its mortgage banking business, which was
acquired as part of its 2009 FDIC-assisted acquisition of AmTrust Bank (“AmTrust”) and is reported under the
Company’s Residential Mortgage Banking segment, to Freedom Mortgage Corporation (“Freedom”). On
September 29, 2017, the sale was completed with proceeds received in the amount of $226.6 million, resulting in a
gain of $7.4 million, which is included in “Non-Interest Income” in the accompanying Consolidated Statements of
Operations and Comprehensive Income (Loss). Freedom acquired both the Company’s origination and servicing
platforms, as well as its mortgage servicing loan portfolio of $20.5 billion and related mortgage servicing rights
(“MSRs”) asset of $208.8 million.
Accordingly, all of the loans held for sale that were outstanding at December 31, 2017, were originated by the
Community Bank through its previous mortgage banking operation, and are to be sold to Freedom. Such loans are
carried at fair value, which 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 mortgage interest rates subsequent to loan
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funding. In addition, loans originated as “held for investment” and subsequently designated as “held for sale” are
transferred to held for sale at fair value.
Additionally, the Company received approval from the FDIC to sell assets covered under its Loss Share
Agreements (“LSA”), early terminate the LSA, and entered into an agreement to sell the majority of its one-to-four
family residential mortgage-related assets, including those covered under the LSA, to an affiliate of Cerberus Capital
Management, L.P. (“Cerberus”). On July 28, 2017, the Company completed the sale, resulting in the receipt of
proceeds of $1.9 billion from Cerberus and the FDIC and settled the related FDIC loss share receivable, resulting in a
gain of $74.6 million which is included in “Non-Interest Income” in the accompanying Consolidated Statements of
Operations and Comprehensive Income (Loss). As a result of this sale the Company has no covered loans at
December 31, 2017.
The Company recognizes interest income on non-covered loans held for investment and held for sale 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 income on loans is recorded in interest income and only when cash is received. Accordingly, there
are no assumptions involved in the recognition of prepayment income.
Two factors are considered in determining the amount of prepayment 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. When interest rates are declining, rising precipitously, or perceived to be on the
verge of rising, prepayment income may increase as more borrowers opt to refinance and lock in current rates prior to
further increases taking place.
A loan generally is classified as a “non-accrual” loan when it is 90 days or more past due or when it is deemed
to be impaired because the Company no longer expects to collect all amounts due according to the contractual terms
of the loan agreement. When a loan is placed on non-accrual status, management 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 current and management 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 represents our estimate of probable and estimable losses inherent
in the non-covered loan portfolio as of the date of the balance sheet. Losses on non-covered loans are charged against,
and recoveries of losses on non-covered loans are credited back to, the allowance for losses on non-covered loans.
Although non-covered loans are held by either the Community Bank or the Commercial Bank, and a separate
loan loss allowance is established for each, the total of the two allowances is available to cover all losses incurred.
In addition, except as otherwise noted in the following discussion, the process for establishing the allowance for losses
on non-covered loans is largely the same for each of the Community Bank and the Commercial Bank.
The methodology used for the allocation of the allowance for non-covered loan losses at December 31, 2017
and December 31, 2016 was generally comparable, whereby the Community Bank and the Commercial Bank
segregated their loss factors (used for both criticized and non-criticized loans) into a component that was primarily
based on historical loss rates and a component that was primarily based on other qualitative factors that are probable
to affect loan collectability. In determining the respective allowances for non-covered loan losses, management
considers the Community Bank’s and the Commercial Bank’s current business strategies and credit processes,
including compliance with applicable regulatory guidelines and with guidelines approved by the respective Boards of
Directors with regard to credit limitations, loan approvals, underwriting criteria, and loan workout procedures.
The allowance for losses on non-covered loans is established based on management’s evaluation of incurred
losses in the portfolio in accordance with GAAP, and is comprised of both specific valuation allowances and general
valuation allowances.
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Specific valuation allowances are established based on management’s analyses of individual loans that are
considered impaired. If a non-covered loan is deemed to be impaired, management measures the extent of the
impairment and establishes a specific valuation allowance for that amount. A non-covered loan is classified as
“impaired” when, based on current information and/or events, it is probable that the Company will be unable to collect
all amounts due under the contractual terms of the loan agreement. The Company applies this classification as
necessary to non-covered loans individually evaluated for impairment in its portfolios. Smaller-balance homogenous
loans and loans carried at the lower of cost or fair value are evaluated for impairment on a collective, rather than
individual, basis. Loans to certain borrowers who have experienced financial difficulty and for which the terms have
been modified, resulting in a concession, are considered troubled debt restructurings (“TDRs”) and are classified as
impaired.
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. Generally, when the fair value of the collateral, net of the estimated cost to sell, or the present value of
the expected cash flows is less than the recorded investment in the loan, any shortfall is promptly charged off.
The Company also follows a process to assign general valuation allowances to non-covered loan categories.
General valuation allowances are established by applying our loan loss provisioning methodology, and reflect the
inherent risk in outstanding held-for-investment loans. This loan loss provisioning methodology considers various
factors in determining the appropriate quantified risk factors to use to determine the general valuation allowances. The
factors assessed begin with the historical loan loss experience for each major loan category. The Company also takes
into account an estimated historical loss emergence period (which is the period of time between the event that triggers
a loss and the confirmation and/or charge-off of that loss) for each loan portfolio segment.
The allocation methodology consists of the following components: First, the Company determines an allowance
for loan losses based on a quantitative loss factor for loans evaluated collectively for impairment. This quantitative
loss factor is based primarily on historical loss rates, after considering loan type, historical loss and delinquency
experience, and loss emergence periods. The quantitative loss factors applied in the methodology are periodically re-
evaluated and adjusted to reflect changes in historical loss levels, loss emergence periods, or other risks. Lastly, the
Company allocates an allowance for loan losses based on qualitative loss factors. These qualitative loss factors are
designed to account for losses that may not be provided for by the quantitative loss component due to other factors
evaluated by management, which include, but are not limited to:
• Changes in lending policies and procedures, including changes in underwriting standards and collection,
and charge-off and recovery practices;
• Changes in international, national, regional, and local economic and business conditions and developments
that affect the collectability of the portfolio, including the condition of various market segments;
• Changes in the nature and volume of the portfolio and in the terms of loans;
• Changes in the volume and severity of past-due loans, the volume of non-accrual loans, and the volume and
severity of adversely classified or graded loans;
• Changes in the quality of our loan review system;
• Changes in the value of the underlying collateral for collateral-dependent loans;
• The existence and effect of any concentrations of credit, and changes in the level of such concentrations;
• Changes in the experience, ability, and depth of lending management and other relevant staff; and
• The effect of other external factors, such as competition and legal and regulatory requirements, on the level
of estimated credit losses in the existing portfolio.
By considering the factors discussed above, the Company determines an allowance for non-covered loan losses
that is applied to each significant loan portfolio segment to determine the total allowance for losses on non-covered
loans.
The historical loss period the Company uses to determine the allowance for loan losses on non-covered loans is
a rolling 28-quarter look-back period, as the Company believes this produces an appropriate reflection of our historical
loss experience.
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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;
• Regular meetings of executive management with the pertinent Board committee, during which observable
trends in the local economy and/or the real estate market are discussed;
• Assessment of the aforementioned factors by the pertinent members of the Boards of Directors and
management when making a business judgment regarding the impact of anticipated changes on the future
level of loan losses; and
• Analysis of the portfolio in the aggregate, as well as on an individual loan basis, taking into consideration
payment history, underwriting analyses, and internal risk ratings.
In order to determine their overall adequacy, each of the respective non-covered loan loss allowances is reviewed
quarterly by management and the Board of Directors of the Community Bank or the Commercial Bank, as applicable.
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. 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 notification
was received that the borrower has filed for bankruptcy.
The level of future additions to the respective non-covered loan loss allowances is based on many factors,
including certain factors that are beyond management’s control, such as changes in economic and local market
conditions, including declines in real estate values, and increases in vacancy rates and unemployment. Management
uses the best available information to recognize losses on loans or to make additions to the loan loss allowances;
however, the Community Bank and/or the Commercial Bank may be required to take certain charge-offs and/or
recognize further additions to their loan loss allowances, based on the judgment of regulatory agencies with regard to
information provided to them during their examinations of the Banks.
An allowance for unfunded commitments is maintained separate from the allowances for non-covered loan
losses and is included in “Other liabilities” in the Consolidated Statements of Condition.
See Note 6, “Allowances for Loan Losses” for a further discussion of our allowance for losses on covered loans,
as well as additional information about our allowance for losses on non-covered loans.
Allowance for Losses on Covered Loans
The Company sold its covered loan portfolio during the third quarter of 2017; therefore, the Company had no
allowance for losses on covered loans as of December 31, 2017. The Company had elected to account for the loans
acquired in the AmTrust and Desert Hills acquisitions (the “covered loans”) based on expected cash flows. This
election was 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, the Company maintained the integrity of a pool of multiple loans accounted for as a
single asset with a single composite interest rate and an aggregate expectation of cash flows.
Covered loans were reported exclusive of the FDIC loss share receivable. The covered loans acquired in the
AmTrust and Desert Hills Bank (“Desert Hills”) acquisitions were reviewed for collectability based on the
expectations of cash flows from these loans. Covered loans were aggregated into pools of loans with common
characteristics. In determining the allowance for losses on covered loans, the Company periodically performed an
analysis to estimate the expected cash flows for each of the loan pools. A provision for losses on covered loans was
recorded to the extent that the expected cash flows from a loan pool have decreased for credit-related items since the
acquisition date. Accordingly, during the loss share recovery period, if there is a decrease in expected cash flows due
to an increase in estimated credit losses compared to the estimates made at the respective acquisition dates, the
decrease in the present value of expected cash flows was recorded as a provision for covered loan losses charged to
earnings, and the allowance for covered loan losses will be increased. During the loss share recovery period, a related
credit to non-interest income and an increase in the FDIC loss share receivable was recognized at the same time, and
was measured based on the applicable loss sharing agreement percentage.
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See Note 6, “Allowances for Loan Losses” for a further discussion of the allowances for losses on non-covered
and covered loans.
Goodwill
In connection with the Company’s acquisitions, assets that are acquired and liabilities that are assumed are
recorded at their estimated fair values. Goodwill represents the excess of the purchase price of acquisitions over the
fair value of the identifiable net assets acquired, including other identified intangible assets. The determination of
whether or not goodwill is impaired could require the Company to make significant judgments and could require the
use of significant estimates and assumptions regarding estimated future cash flows. If the Company changes its
strategy or if market conditions shift, judgments may change, which may result in adjustments to the recorded goodwill
balance. Any resulting impairment loss could have a material adverse impact on our financial condition and results of
operations.
The Company tests goodwill for impairment at the reporting unit level. These impairment evaluations are
performed by comparing the carrying value of the goodwill of a reporting unit to its estimated fair value. Goodwill is
allocated to the reporting units based on the reporting unit expected to benefit from the business combination.
Previously, the Company had identified two reporting units, which were also our segments: our Banking Operations
reporting unit and the Residential Mortgage Banking reporting unit. On September 29, 2017, the Company sold the
Residential Mortgage Banking reporting unit; accordingly, the Company has one remaining reporting unit.
Goodwill is evaluated for impairment annually at December 31st, or more frequently if conditions exist that
indicate that the carrying value may be impaired. ASC 350 provides for an optional qualitative assessment for testing
goodwill for impairment that may allow companies to skip the annual two-step test described below. The qualitative
assessment permits companies to assess whether it is more likely than not (i.e., a likelihood of greater than 50%) that the
fair value of a reporting unit is less than its carrying amount. If the Company concludes based on the qualitative assessment
that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, the Company is required
to perform the two-step test. If the Company concludes based on the qualitative assessment that it is not more likely than
not that the fair value of a reporting unit is less than its carrying amount, it has completed its goodwill impairment test and
does not need to perform the two-step test.
Under step one of the two-step test, the fair value of a reporting unit is compared with its carrying value (including
goodwill). If the fair value of a reporting unit is less than its carrying value, an indication of goodwill impairment exists for
that reporting unit and the entity must perform step two of the impairment test (measurement). Under step two, an impairment
loss is recognized for any excess of the carrying amount of a reporting unit’s goodwill over the implied fair value of that
goodwill. The implied fair value of goodwill is determined by allocating the fair value of the reporting unit in a manner
similar to a purchase price allocation and the residual fair value after this allocation is the implied fair value of the reporting
unit’s goodwill. If the fair value of the reporting unit exceeds its carrying value, step two does not need to be performed.
At December 31, 2017, the Company utilized a quantitative assessment to test goodwill for impairment and
determined that the fair value of its single reporting unit exceeded its carrying value thereby concluding that goodwill was
not impaired.
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 Operations and Comprehensive Income (Loss), and amounted to $32.8 million, $32.8 million, and
$31.5 million, respectively, in the years ended December 31, 2017, 2016, and 2015.
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 Operations and Comprehensive Income (Loss). At December 31, 2017 and 2016, the Company’s
investment in BOLI was $967.2 million and $949.0 million, respectively. There were no additional purchases of BOLI
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during the years ended December 31, 2017 or 2016. The Company’s investment in BOLI generated income of
$27.1 million, $31.0 million, and $27.5 million, respectively, during the years ended December 31, 2017, 2016, and
2015.
Repossessed Assets
Repossessed assets consist of any property (“other real estate owned” or “OREO”) or other assets acquired
through, or in lieu of, foreclosure are sold or rented, and are recorded at fair value, less the estimated selling costs, at
the date of acquisition. Following foreclosure, management periodically performs a valuation of the asset, and the
assets are carried at the lower of the carrying amount or fair value, less the estimated selling costs. Expenses and
revenues from operations and changes in valuation, if any, are included in “General and administrative” expense in
the Consolidated Statements of Operations and Comprehensive Income (Loss). At December 31, 2017, the Company
had $8.2 million of OREO and $8.2 million of taxi medallions. The balance at December 31, 2016 was $28.6 million
and included OREO of $17.0 million that was covered under the Company’s FDIC LSA. There were no repossessed
taxi medallions at December 31, 2016.
Income Taxes
Income tax expense consists of income taxes that are currently payable and deferred income taxes. Deferred
income tax expense 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-Based Compensation
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 restricted stock or other forms of related rights. At December 31, 2017, the Company had 7,135,071 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, see Note 13, “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 rate of return on plan assets. The Company evaluates these assumptions on an annual basis.
Other factors considered by the Company in its evaluation include retirement patterns, mortality rates, 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.
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Earnings (Loss) per Common Share (Basic and Diluted)
Basic earnings (loss) per common share (“EPS”) is computed by dividing the net income (loss) available to
common shareholders 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 paid on the
Company’s common stock 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 on the common stock. The
Company grants restricted stock to certain employees under its stock-based compensation plan. Recipients receive
cash dividends during the vesting periods of these awards, including on the unvested portion of such awards. Since
these dividends are non-forfeitable, the unvested awards are considered participating securities and therefore have
earnings allocated to them.
The following table presents the Company’s computation of basic and diluted earnings (loss) per common share for the
years ended December 31, 2017, 2016, and 2015:
(in thousands, except share and per share amounts)
Net income (loss) available to common shareholders
Less: Dividends paid on and earnings/(loss) allocated to
participating securities
Earnings/(loss) applicable to common stock
Weighted average common shares outstanding
Basic earnings (loss) per common share
Years Ended December 31,
2016
$495,401
2017
$441,580
2015
$(47,156 )
(3,554 )
$438,026
(3,795)
$491,606
(3,357 )
$(50,513 )
487,073,951 485,150,173 448,982,223
$(0.11 )
$0.90
$1.01
Earnings (loss) applicable to common stock
$438,026
$491,606
$(50,513 )
487,073,951 485,150,173 448,982,223
Weighted average common shares outstanding
Potential dilutive common shares
--
Total shares for diluted earnings (loss) per common share computation 487,073,951 485,150,173 448,982,223
Diluted earnings (loss) per common share and common share
--
--
equivalents
$0.90
$1.01
$(0.11 )
Recently Adopted Accounting Standards
In March 2016, the FASB issued ASU No. 2016-09, “Compensation—Stock Compensation (Topic 718):
Improvements to Employee Share-Based Payment Accounting.” ASU No. 2016-09 simplifies several aspects of the
accounting for share-based payment transactions, including the income tax consequences, classification of awards as
either equity or liabilities, classification on the Statements of Cash Flows, and accounting for forfeitures. The
Company adopted ASU No. 2016-09 prospectively, effective for the first quarter of 2016. Upon adoption, the
Company recorded an immaterial cumulative-effect adjustment to the opening balance of retained earnings. In
addition, ASU No. 2016-09 requires that excess tax benefits and shortfalls be recorded as income tax benefit or
expense in the income statement, rather than as equity. This resulted in an immaterial benefit to income tax expense
in the first quarter of 2016. Relative to forfeitures, ASU No. 2016-09 allows an entity’s accounting policy election to
either continue to estimate the number of awards that are expected to vest, as under previous guidance, or account for
forfeitures when they occur. The Company elected to continue its practice of estimating the number of awards that
will be forfeited. The income tax effects of ASU No. 2016-09 on the Statements of Cash Flows are now classified as
cash flows from operating activities, rather than cash flows from financing activities. The Company elected to apply
this cash flow classification guidance prospectively and, therefore, prior periods were not adjusted. ASU No. 2016-09
also requires the presentation of certain employee withholding taxes as a financing activity on the Consolidated
Statements of Cash Flows; this is consistent with the manner in which the Company has presented such employee
withholding taxes in the past. Accordingly, no reclassification for prior periods was required.
In December 2016, the FASB issued ASU No. 2016-19, “Technical Corrections and Improvements,” which
includes various clarifications or corrections to the ASC that are not intended to have a significant effect on current
accounting practice or create significant administrative costs for most entities. ASU No. 2016-19 includes an
amendment that clarifies the difference between a valuation approach and a valuation technique when applying the
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guidance in ASC Topic 820, Fair Value Measurement. The amendment also requires a company to disclose when
there has been a change in either or both a valuation approach or valuation technique. During 2017, the Company
changed its valuation technique for its investment securities from the use of a yield-to-price calculation to using quoted
prices from brokers or pricing services to measure fair value. The Company believes that the use of quoted prices from
brokers or pricing services is an appropriate technique given the characteristics of its current investment securities
holdings.
Recently Issued Accounting Standards
In February 2018, the FASB issued ASU No. 2018-02, “Income Statement-Reporting Comprehensive Income
(Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income.” ASU
No. 2018-02 was issued to address a narrow-scope financial reporting issue that arose as a consequence of the
enactment of the Tax Cuts and Jobs Act of 2017. ASU No. 2018-02 permits an election to reclassify from accumulated
other comprehensive income (loss) to retained earnings the stranded tax effects resulting from the difference between
the historical federal corporate income tax rate of 35% and the newly enacted 21% federal corporate income tax rate.
ASU No. 2018-02 is effective for all entities for fiscal years beginning after December 15, 2018, and interim periods
within those fiscal years with early adoption permitted, including adoption in any interim period, for public business
entities for reporting periods for which financial statements have not yet been issued. The Company plans to early
adopt ASU No. 2018-02 effective January 1, 2018. The adoption of ASU No. 2018-02, is not expected to have a
material effect on the Company’s Consolidated Statements of Condition, results of operations, or cash flows.
In May 2017, the FASB issued ASU No. 2017-09, “Compensation—Stock Compensation (Topic 718).” ASU
No. 2017-09 clarifies when to account for a change to the terms or conditions of a share-based payment award as a
modification. Under ASU No. 2017-09, modification accounting is applied only if the fair value, the vesting
conditions, and the classification of the award (as an equity or liability instrument) change as a result of the change in
terms or conditions. The Company plans to adopt ASU No. 2017-09 as of January 1, 2018. ASU No. 2017-09
amendments will be applied prospectively to awards modified on or after the effective date. The adoption of ASU
No. 2017-09 is not expected to have a material effect on the Company’s Consolidated Statements of Condition, results
of operations, or cash flows.
In March 2017, the FASB issued ASU No. 2017-08, “Receivables—Nonrefundable Fees and Other Costs (Subtopic
310-20): Premium Amortization on Purchased Callable Debt Securities.” ASU No. 2017-08 specifies that the premium
amortization period ends at the earliest call date, rather than the contractual maturity date, for purchased non-contingently
callable debt securities. Shortening the amortization period is generally expected to more closely align the interest income
recognition with the expectations incorporated in the market pricing on the underlying securities. The shorter amortization
period means that interest income would generally be lower in the periods before the earliest call date and higher thereafter
(if the security is not called) compared to current GAAP. Currently, the premium is amortized to the contractual maturity
date under GAAP. Because the premium will be amortized to the earliest call date, the holder will not recognize a loss in
earnings for the unamortized premium when the call is exercised. This ASU No. 2017-08 is effective for annual and interim
periods in fiscal years beginning after December 15, 2018. The ASU No. 2017-08 specifies that the transition approach to
the standard be accounted for on a modified retrospective basis with a cumulative effect adjustment in retained earnings as
of the beginning of the period of adoption. The Company plans to adopt ASU No. 2017-08 effective January 1, 2019 and
the adoption is not expected to have a material effect on the Company’s Consolidated Statements of Condition, results of
operations, or cash flows.
In March 2017, the FASB issued ASU No. 2017-07, “Improving the Presentation of Net Periodic Pension Cost and
Net Periodic Postretirement Benefit Cost,” which requires companies to present the service cost component of net benefit
cost in the income statement line items where they report compensation cost, and all other components of net benefit cost in
the income statement separately from the service cost component and outside of operating income, if this subtotal is
presented. Additionally, the service cost component will be the only component that can be capitalized. ASU No. 2017-07
is effective for annual and interim periods in fiscal years beginning after December 15, 2018. The standard requires
retrospective application for the amendments related to the presentation of the service cost component and other components
of net benefit cost, and prospective application for the amendments related to the capitalization requirements for the service
cost components of net benefit cost. The adoption of ASU No. 2017-07 on January 1, 2018, is not expected to have a material
effect on the Company’s Consolidated Statements of Condition, results of operations, or cash flows.
In January 2017, the FASB issued ASU No. 2017-04, “Intangibles—Goodwill and Other (Topic 350):
Simplifying the Test for Goodwill Impairment.” ASU No. 2017-04 eliminates the second step of the goodwill
impairment test which requires an entity to determine the implied fair value of the reporting unit’s goodwill. Instead,
an entity will recognize an impairment loss if the carrying value of the net assets assigned to the reporting unit exceeds
the fair value of the reporting unit, with the impairment loss not to exceed the amount of goodwill recorded. ASU
No. 2017-04 does not amend the optional qualitative assessment of goodwill impairment. ASU No. 2017-04 is
91
effective for annual and interim periods in fiscal years beginning after December 15, 2019, with early adoption
permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The
Company plans to adopt ASU No. 2017-04 prospectively beginning January 1, 2020 and the impact of its adoption on
the Company’s Consolidated Statements of Condition, results of operations, or cash flows will be dependent upon
goodwill impairment determinations made after that date.
In November 2016, the FASB issued ASU No. 2016-18, “Restricted Cash.” ASU No. 2016-18 will amend the
guidance in ASC Topic 230, Statement of Cash Flows, and is intended to reduce the diversity in the classification and
presentation of changes in restricted cash on the statement of cash flows. ASU No. 2016-18 will require that the
reconciliation of the beginning-of-period and end-of-period cash and cash equivalents amounts shown on the statement
of cash flows include restricted cash and restricted cash equivalents. If restricted cash and restricted cash equivalents
are presented separately from cash and cash equivalents on the balance sheet, an entity will be required to reconcile
the amounts presented on the statement of cash flows to the amounts on the balance sheet. An entity will also be
required to disclose information regarding the nature of the restrictions. ASU No. 2016-18 requires retrospective
application and is effective for fiscal years beginning after December 15, 2017 and interim periods within those fiscal
years. Early adoption is permitted, including adoption in an interim period. If an entity early adopts the amendments
in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim
period. The Company plans to adopt ASU No. 2016-18 as of January 1, 2018. The adoption of ASU No. 2016-18 is
not expected to have a material impact on the Company’s financial position or results of operations in future filings.
In August 2016, the FASB issued ASU No. 2016-15, “Statement of Cash Flows (Topic 230): Classification of
Certain Cash Receipts and Cash Payments.” ASU No. 2016-15 addresses the following cash flow issues: debt
prepayment or debt extinguishment costs; settlement of zero-coupon debt instruments or other debt instruments with
coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing; contingent
consideration payments made after a business combination; proceeds from the settlement of insurance claims;
proceeds from the settlement of corporate-owned life insurance policies (including bank-owned life insurance
policies); distributions received from equity method investees; beneficial interests in securitization transactions; and
separately identifiable cash flows and application of the predominance principle. The amendments in ASU No. 2016-
15 are effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods
within those fiscal years. Early adoption is permitted, including adoption in an interim period. If an entity early adopts
the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that
includes that interim period. An entity that elects early adoption must adopt all of the amendments in the same period.
The amendments in ASU No. 2016-15 should be applied using a retrospective transition method to each period
presented. If it is impracticable to apply the amendments retrospectively for some of the issues, the amendments for
those issues would be applied prospectively as of the earliest date practicable. The Company plans to adopt ASU
No. 2016-15 beginning January 1, 2018 and its adoption is not expected to have a material effect on the Company’s
Consolidated Statements of Condition, results of operations, or cash flows.
In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments—Credit Losses (Topic 326):
Measurement of Credit Losses on Financial Instruments.” ASU No. 2016-13 amends guidance on reporting credit
losses for assets held on an amortized cost basis and available-for-sale debt securities. For assets held at amortized
cost, ASU No. 2016-13 eliminates the probable initial recognition threshold in current GAAP and, instead, requires
an entity to reflect its current estimate of all expected credit losses. Current GAAP requires an “incurred loss”
methodology for recognizing credit losses that delays recognition until it is probable a loss has been incurred. The
amendments in ASU No. 2016-13 replace the incurred loss impairment methodology in current GAAP with a
methodology that reflects the measurement of expected credit losses based on relevant information about past events,
including historical loss experience, current conditions, and reasonable and supportable forecasts that affect the
collectability of the reported amounts. The allowance for credit losses is a valuation account that is deducted from the
amortized cost basis of the financial assets to present the net amount expected to be collected. For available-for-sale
debt securities, credit losses should be measured in a manner similar to current GAAP, however ASU No. 2016-13
will require that credit losses be presented as an allowance rather than as a write-down. The amendments affect loans,
debt securities, trade receivables, net investments in leases, off-balance sheet credit exposures, reinsurance
receivables, and any other financial assets not excluded from the scope that have the contractual right to receive cash.
For public business entities that are SEC filers, the amendments in ASU No. 2016-13 are effective for fiscal years
beginning after December 15, 2019, including interim periods within those fiscal years. An entity will apply the
amendments in ASU No. 2016-13 through a cumulative-effect adjustment to retained earnings as of January 1, 2020
(that is, a modified-retrospective approach). A prospective transition approach is required for debt securities for which
an other-than-temporary impairment had been recognized before the effective date. The effect of a prospective
transition approach is to maintain the same amortized cost basis before and after the effective date of ASU No. 2016-
13. Amounts previously recognized in accumulated other comprehensive income (loss) as of the date of adoption that
92
relate to improvements in cash flows expected to be collected should continue to be accreted into income over the
remaining life of the asset. Recoveries of amounts previously written off relating to improvements in cash flows after
the date of adoption should be recorded in earnings when received. Financial assets for which the guidance in Subtopic
310-30, “Receivables—Loans and Debt Securities Acquired with Deteriorated Credit Quality (“PCD assets”),” has
previously been applied should prospectively apply the guidance in ASU No. 2016-13 for PCD assets. A prospective
transition approach should be used for PCD assets where upon adoption, the amortized cost basis should be adjusted
to reflect the addition of the allowance for credit losses. This transition relief will avoid the need for a reporting entity
to reassess its purchased financial assets that exist as of the date of adoption to determine whether they would have
met at acquisition the new criteria of more-than insignificant credit deterioration since origination. The transition relief
also will allow an entity to accrete the remaining noncredit discount (based on the revised amortized cost basis) into
interest income at the effective interest rate at the adoption date of ASU No. 2016-13. The same transition
requirements should be applied to beneficial interests that previously applied Subtopic 310-30 or have a significant
difference between contractual cash flows and expected cash flows. The Company is evaluating ASU No. 2016-13,
has initiated a working group with multiple members from applicable departments to evaluate the requirements of the
new standard, planning for loss modeling requirements consistent with lifetime expected loss estimates, and assessing
the impact it will have on current processes. This evaluation includes a review of existing credit models to identify
areas where existing credit models used to comply with other regulatory requirements may be leveraged and areas
where new models may be required. The adoption of ASU No. 2016-13 could have a material effect on the Company’s
Consolidated Statements of Condition and results of operations. The extent of the impact upon adoption will likely
depend on the characteristics of the Company’s loan portfolio and economic conditions at that date, as well as
forecasted conditions thereafter.
In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842).” ASU No. 2016-02 will require
entities that lease assets to recognize as assets and liabilities on the balance sheet the respective rights and obligations
created by those leases. ASU No. 2016-02 also will require disclosures that include qualitative and quantitative
requirements, providing additional information about the amounts recorded in the financial statements. The
amendments in this update are effective for fiscal years beginning after December 15, 2018, including interim periods
within those fiscal years, with early application permitted. In transition, lessees and lessors are required to recognize
and measure leases at the beginning of the earliest period presented using a modified retrospective approach. The
modified retrospective approach includes a number of optional practical expedients that entities we may elect to apply.
These practical expedients relate to the identification and classification of leases that commenced before the effective
date, initial direct costs for leases that commenced before the effective date, and the ability to use hindsight in
evaluating lessee options to extend or terminate a lease or to purchase the underlying asset. An entity that elects to
apply the practical expedients will, in effect, continue to account for leases that commence before the effective date
in accordance with previous GAAP unless the lease is modified, except that lessees are required to recognize a right-
of-use asset and a lease liability for all operating leases at each reporting date based on the present value of the
remaining minimum rental payments that were tracked and disclosed under previous GAAP. The transition guidance
in Topic 842 also provides specific guidance for sale and leaseback transactions, build-to-suit leases, leveraged leases,
and amounts previously recognized in accordance with the business combinations guidance for leases. The Company
plans to adopt ASU No. 2016-02 effective January 1, 2019 using the required modified retrospective approach, which
includes presenting the cumulative effect of initial application along with supplementary disclosures. As a lessor and
lessee, we do not anticipate the classification of our leases to change, but we expect to recognize right-of-use assets
and lease liabilities for substantially virtually all of our operating lease commitments leases for which we are the lessee
as a lease liability and corresponding right-of-use asset on our Consolidated Statements of Condition. The Company
has assembled a project management team, formed a working group comprised of associates from different disciplines,
such as Vendor Risk Management, Real Estate, and Technology, including working with associates engaged in the
procurement of goods and services used in the Company’s operations. We have made substantial progress in reviewing
contractual arrangements for embedded leases in an effort to identify the Company’s full lease population and is
presently evaluating all of its leases, as well as contracts that may contain embedded leases, for compliance with the
new lease accounting rules.
In January 2016, the FASB issued ASU No. 2016-01, “Financial Instruments—Overall (Subtopic 825-10):
Recognition and Measurement of Financial Assets and Financial Liabilities.” ASU No. 2016-01 amends guidance on
classification and measurement of financial instruments, including revisions in accounting related to the classification
and measurement of investments in equity securities and presentation of certain fair value changes for financial
liabilities when the fair value option is elected. As it relates to the Company, it will require equity investments (except
those accounted for under the equity method of accounting or those that result in consolidation of the investee) to be
measured at fair value with changes in fair value recognized in net income, thus eliminating eligibility for the current
available-for-sale category. However, FHLB stock is not in the scope of ASU No. 2016-01 and will continue to be
presented at cost. The amendments in ASU No. 2016-01 are effective for fiscal years beginning after December 15,
93
2017, including interim periods within those fiscal years. Except for the early application guidance for liabilities at
fair value in accordance with the fair value option for financial instruments, and certain fair value of financial
instruments disclosures, early adoption of the ASU is not permitted. An entity should apply the amendments by means
of a cumulative-effect adjustment to the balance sheet as of the beginning of the fiscal year of adoption. The
amendments related to equity securities without readily determinable fair values (including disclosure requirements)
should be applied prospectively to equity investments that exist as of the date of adoption of ASU No. 2016-01. The
Company plans to adopt ASU No. 2016-01 as of January 1, 2018. Upon initial adoption, an immaterial amount of
unrealized losses related to the in-scope equity securities will be reclassified from other comprehensive income to
retained earnings.
In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers,” which requires
an entity to recognize revenue to depict the transfer of promised goods or services to customers in an amount that
reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The
provisions ASU No. 2014-09 and related amendments are effective for annual reporting periods beginning after
December 15, 2017, and interim reporting periods within that annual period, with early adoption permitted for annual
reporting periods beginning after December 15, 2016, and interim reporting periods within that annual period. The
Company will adopt ASU No. 2014-09 and its amendments which established ASC Topic 606, “Revenue from
Contracts with Customers” on January 1, 2018. In summary, the core principle of ASC Topic 606 is that an entity
recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the
consideration to which the entity expects to be entitled in exchange for those goods or services. The Company’s
revenue streams that are covered by ASC Topic 606 are primarily fees earned in connection with performing services
for our customers such as investment advisor fees, wire transfer fees, and bounced check fees. Such fees are either
satisfied over time if the service is performed over a period of time (as with investment advisor fees or safe deposit
box rental fees), or satisfied at a point in time (as with wire transfer fees and bounced check fees). The Company
recognizes fees for services performed over time over the time period to which the fees relate. The Company
recognizes fees earned at a point in time on the day the fee is earned. The Company will adopt ASU No. 2014-09
using the modified retrospective approach which includes presenting the cumulative effect of initial application, if
any, along with supplementary disclosures. The Company will not record a cumulative effect adjustment upon
adoption of ASU No. 2014-09.
NOTE 3: RECLASSIFICATIONS OUT OF ACCUMULATED OTHER COMPREHENSIVE LOSS
(in thousands)
For the Twelve Months Ended December 31, 2017
Details about
Accumulated Other Comprehensive Loss
Unrealized gains on available-for-sale securities
Amortization of defined benefit pension plan
items:
Past service liability
Actuarial losses
Total reclassifications for the period
Amount Reclassified
from Accumulated
Other Comprehensive
Loss (1)
$ 2,988
(1,245 )
$ 1,743
Affected Line Item in the
Consolidated Statements of Operations
and Comprehensive Income (Loss)
Net gain on sales of securities
Income tax expense
Net gain on sales of securities, net of tax
Included in the computation of net
periodic (credit) expense (2)
Included in the computation of net
periodic (credit) expense (2)
Total before tax
Tax benefit
Amortization of defined benefit pension
plan items, net of tax
$
249
(8,484 )
(8,235 )
3,432
$(4,803 )
$(3,060 )
(1) Amounts in parentheses indicate expense items.
(2) See Note 12, “Employee Benefits,” for additional information.
94
NOTE 4: SECURITIES
The following tables summarize the Company’s portfolio of securities available for sale at December 31, 2017
and 2016:
(in thousands)
Mortgage-Related Securities:
GSE (1) certificates
GSE CMOs (2)
Total mortgage-related securities
Other Securities:
U. S. Treasury obligations
GSE debentures
Corporate bonds
Municipal bonds
Capital trust notes
Preferred stock
Mutual funds and common stock (3)
Total other securities
Total securities available for sale (4)
Amortized
Cost
$ 2,023,677
536,284
$ 2,559,961
$ 199,960
473,879
79,702
70,381
48,230
15,292
16,874
$ 904,318
$ 3,464,279
December 31, 2017
Gross
Unrealized
Gain
Gross
Unrealized
Loss
$ 46,364
14,446
$ 60,810
$
--
2,044
11,073
540
6,498
142
487
$ 20,784
$ 81,594
$ 1,199
826
$ 2,025
$
62
2,665
--
801
8,632
--
261
$ 12,421
$ 14,446
Fair Value
$ 2,068,842
549,904
$ 2,618,746
$ 199,898
473,258
90,775
70,120
46,096
15,434
17,100
$ 912,681
$ 3,531,427
(1) Government-sponsored enterprise.
(2) Collateralized mortgage obligations.
(3) Primarily consists of mutual funds that are Community Reinvestment Act-qualified investments.
(4) The amortized cost includes the non-credit portion of OTTI recorded in AOCL. At December 31, 2017, the non-credit portion
of OTTI recorded in AOCL was $8.6 million (before taxes).
(in thousands)
Mortgage-Related Securities:
GSE certificates
Other Securities:
Municipal bonds
Capital trust notes
Preferred stock
Mutual funds and common stock
Total other securities
Total securities available for sale
December 31, 2016
Gross
Unrealized
Gain
Gross
Unrealized
Loss
Amortized
Cost
Fair Value
$
7,786
$
--
$ 460
$
7,326
$
583
9,458
70,866
16,874
$ 97,781
$105,567
$
48
2
1,446
484
$1,980
$1,980
$
--
2,217
328
261
$ 2,806
$ 3,266
$
631
7,243
71,984
17,097
$ 96,955
$104,281
95
The following table summarizes the Company’s portfolio of securities held to maturity at December 31, 2016:
(in thousands)
Mortgage-Related Securities:
GSE certificates
GSE CMOs
Total mortgage-related securities
Other Securities:
U. S. Treasury obligations
GSE debentures
Corporate bonds
Municipal bonds
Capital trust notes
Total other securities
Total securities held to maturity (1)
Amortized
Cost
Carrying
Amount
Gross
Unrealized
Gain
Gross
Unrealized
Loss
Fair Value
$ 2,193,489
1,019,074
$ 3,212,563
$ 2,193,489
1,019,074
$ 3,212,563
$ 64,431
36,895
$101,326
$ 200,293
88,457
74,217
71,554
74,284
$ 508,805
$ 3,721,368
$ 200,293
88,457
74,217
71,554
65,692
$ 500,213
$ 3,712,776
$
--
3,836
9,549
--
2,662
$ 16,047
$117,373
$ 2,399
57
$ 2,456
$
73
--
--
1,789
11,872
$13,734
$16,190
$ 2,255,521
1,055,912
$ 3,311,433
$ 200,220
92,293
83,766
69,765
56,482
$ 502,526
$ 3,813,959
(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, 2016, the non-credit portion of OTTI recorded in AOCL was $8.6 million (before taxes).
At December 31, 2017 and 2016, respectively, the Company had $603.8 million and $590.9 million of FHLB-
NY stock, at cost. The Company is required to maintain an investment in FHLB-NY stock in order to have access to
the funding it provides.
The following table summarizes the gross proceeds, gross realized gains, and gross realized losses from the sale
of available-for-sale securities during the years ended December 31, 2017, 2016, and 2015:
(in thousands)
Gross proceeds
Gross realized gains
Gross realized losses
2017
December 31,
2016
$453,878 $322,038 $278,689
1,159
4
3,128
--
3,848
860
2015
In addition, during the twelve months ended December 31, 2017, the Company sought to take advantage of
favorable bond market conditions and sold held-to-maturity securities with an amortized cost of $521.0 million
resulting in gross proceeds of $547.9 million including a gross realized gain of $26.9 million. Accordingly, the
Company transferred the remaining $3.0 billion of held-to-maturity securities to available-for-sale with a net
unrealized gain of $82.8 million classified in other comprehensive loss in the Consolidated Statements of Condition.
Having the securities portfolio classified as available-for-sale improves the Company’s interest rate risk sensitivity
and liquidity measures and provides the Company with more options in meeting the expected future Liquidity
Coverage Ratio (“LCR”) requirements.
In the following table, the beginning balance represents the credit loss component for debt securities on which
OTTI occurred prior to January 1, 2017. 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 credit loss amount as of December 31, 2016
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
Increase in cash flows on debt securities
Ending credit loss amount as of December 31, 2017
96
For the
Twelve Months Ended
December 31, 2017
$197,552
--
--
--
--
--
1,219
$196,333
The following table summarizes, by contractual maturity, the amortized cost of available-for-sale securities at December 31, 2017:
(dollars in thousands)
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
Total securities available for sale
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
$
--
883,138
1,002,205
674,618
$ 2,559,961
-- %
3.32
3.44
3.09
3.30 %
$259,256
6,950
283,883
123,750
$673,839
1.82 %
3.84
3.08
3.23
3.22 %
$
148
291
--
69,942
$ 70,381
6.51 %
6.63
--
2.88
2.90 %
$
--
48,449
31,253
48,230
$ 127,932
-- %
3.57
8.37
3.77
4.82 %
$ 259,617
963,589
1,361,457
914,230
$3,498,893
(1) Not presented on a tax-equivalent basis.
(2) Includes corporate bonds and capital trust notes.
(3) As equity securities have no contractual maturity, they have been excluded from this table.
The following table presents available-for-sale securities having a continuous unrealized loss position for less than twelve months and for twelve months or
longer as of December 31, 2017:
(in thousands)
Temporarily Impaired Available-for-Sale Securities:
GSE certificates
GSE debentures
GSE CMOs
U. S. Treasury obligations
Municipal bonds
Capital trust notes
Equity securities
Total temporarily impaired available-for-sale securities
Less than Twelve Months
Twelve Months or Longer
Fair Value
Unrealized Loss Fair Value Unrealized Loss Fair Value
Total
Unrealized Loss
$ 232,546
333,045
118,694
199,898
11,169
--
--
$ 895,352
$ 535
2,665
826
62
259
--
--
$ 4,347
$ 20,440
--
--
--
41,054
35,105
11,545
$ 108,144
$
664
--
--
--
542
8,632
261
$ 10,099
$ 252,986
333,045
118,694
199,898
52,223
35,105
11,545
$ 1,003,496
$ 1,199
2,665
826
62
801
8,632
261
$ 14,446
97
The following table presents held-to-maturity and available-for-sale securities having a continuous unrealized loss position for less than twelve months and
for twelve months or longer as of December 31, 2016:
Less than Twelve Months
Twelve Months or Longer
Total
Fair Value
Unrealized Loss Fair Value Unrealized Loss Fair Value Unrealized Loss
$
--
--
--
--
24,364
$24,364
--
$
5,241
--
$ 5,241
$
--
--
--
--
11,872
$ 11,872
--
$
2,217
--
$ 2,217
$268,891
42,980
200,220
69,765
24,364
$606,220
$ 2,399
57
73
1,789
11,872
$ 16,190
$ 7,326
5,241
29,059
$ 41,626
$
460
2,217
589
$ 3,266
(in thousands)
Temporarily Impaired Held-to-Maturity Securities:
GSE certificates
GSE CMOs
U. S. Treasury obligations
Municipal bonds
Capital trust notes
$ 268,891
42,980
200,220
69,765
--
$ 2,399
57
73
1,789
--
$ 4,318
Total temporarily impaired held-to-maturity securities
$ 581,856
Temporarily Impaired Available-for-Sale Securities:
GSE certificates
Capital trust notes
Equity securities
Total temporarily impaired available-for-sale securities
$ 7,326
--
29,059
$ 36,385
$ 460
--
589
$ 1,049
98
An OTTI loss on impaired debt 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 of impairment
relating to factors other than credit losses are recorded in AOCL.
At December 31, 2017, the Company had unrealized losses on certain GSE mortgage-related securities, U.S.
Treasury obligations, municipal bonds, capital trust notes, and equity securities. The unrealized losses on the
Company’s GSE mortgage-related securities, U.S. Treasury obligations, municipal bonds, and capital trust notes at
December 31, 2017 were primarily caused by movements in market interest rates and spread volatility, rather than
credit risk. These securities are not expected to be settled at a price that is less than the amortized cost of the Company’s
investment.
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 issuers of such notes, to determine their continued creditworthiness.
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. It is possible that these securities will perform worse than is
currently expected, which could lead to adverse changes in cash flows from these securities and potential OTTI losses
in the future. Future events that could trigger material unrecoverable declines in the fair values of the Company’s
investments, and thus result in potential OTTI losses, include, but are not limited to, government intervention;
deteriorating asset quality and credit metrics; significantly higher levels of default and loan loss provisions; losses in
value on the underlying collateral; net operating losses; and illiquidity in the financial markets.
The Company considers a decline in the fair value of equity securities to be other than temporary if the Company
does not expect to recover the entire amortized cost basis of the security. The unrealized losses on the Company’s
equity securities at December 31, 2017 were caused by market volatility. The Company evaluated the near-term
prospects of recovering the fair value of these securities, together with the severity and duration of impairment to date,
and determined that they were not other-than-temporarily impaired. Nonetheless, it is possible that these equity
securities will perform worse than is currently expected, which could lead to adverse changes in their fair value, or to
the failure of the securities to fully recover in value as currently anticipated by management. Either event could cause
the Company to record an OTTI loss in a future period. Events that could trigger a material decline in the fair value
of these securities include, but are not limited to, deterioration in the equity markets; a decline in the quality of the
loan portfolio of the issuer in which the Company has invested; and the recording of higher loan loss provisions and
net operating losses by such issuer.
The investment securities designated as having a continuous loss position for twelve months or more at
December 31, 2017 consisted of six agency mortgage-related securities, five capital trust notes, two municipal bonds,
and one mutual fund. At December 31, 2016 securities designated as having a continuous loss position for twelve
months or more consisted of five capital trust notes. At December 31, 2017, the fair value of securities having a
continuous loss position for twelve months or more was 8.5% below the collective amortized cost of $118.2 million.
At December 31, 2016, the fair value of such securities was 32.2% below the collective amortized cost of
$43.7 million. At December 31, 2017 and 2016, the combined market value of the respective securities represented
unrealized losses of $10.1 million and $14.1 million, respectively.
99
NOTE 5: LOANS
The following table sets forth the composition of the loan portfolio at December 31, 2017 and 2016:
(dollars in thousands)
Non-Covered Loans Held for Investment:
Mortgage Loans:
Multi-family
Commercial real estate
One-to-four family
Acquisition, development, and construction
Total mortgage loans held for investment
Other Loans:
Commercial and industrial
Lease financing, net of unearned income
of $65,041 and $60,278, respectively
Total commercial and industrial loans (1)
Purchased credit-impaired loans
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
Covered loans, net
Loans held for sale
Total loans, net
December 31,
2017
2016
Percent of
Non-Covered
Loans Held for
Investment
Amount
Percent of
Non-Covered
Loans Held
for Investment
Amount
$28,074,709
7,322,226
477,228
435,825
$36,309,988
73.19 %
19.09
1.24
1.14
94.66
$26,945,052
7,724,362
381,081
381,194
$35,431,689
72.13 %
20.68
1.02
1.02
94.85
1,377,964
3.59
1,341,216
3.59
1.50
5.09
0.01
0.05
5.15
100.00 %
662,610
2,040,574
--
8,460
2,049,034
$38,359,022
28,949
(158,046 )
$38,229,925
--
--
$ --
35,258
$38,265,183
1.73
5.32
--
0.02
5.34
100.00 %
559,229
1,900,445
5,762
18,305
1,924,512
$37,356,201
26,521
(158,290 )
$37,224,432
1,698,133
(23,701 )
$ 1,674,432
409,152
$39,308,016
(1) Includes specialty finance loans of $1.5 billion and $1.3 billion, and other C&I loans of $500.8 million and $632.9 million,
respectively, at December 31, 2017 and 2016.
Non-Covered Loans
Non-Covered Loans Held for Investment
The majority of the loans the Company originates for investment are multi-family loans, most of which are
collateralized by non-luxury apartment buildings in New York City with rent-regulated units and below-market rents.
In addition, the Company originates commercial real estate (“CRE”) loans, most of which are collateralized by
income-producing properties such as office buildings, retail centers, mixed-use buildings, and multi-tenanted light
industrial properties that are located in New York City and on Long Island.
To a lesser extent, the Company also originates one-to-four family loans, acquisition, development, and
construction (“ADC”) loans, and C&I loans, for investment. One-to-four family loans held for investment were
originated through the Company’s mortgage banking operation and primarily consisted of jumbo prime adjustable
rate mortgages made to borrowers with a solid credit history.
ADC loans are primarily originated for multi-family and residential tract projects in New York City and on
Long Island. C&I loans consist of asset-based loans, equipment loans and leases, and dealer floor-plan loans (together,
“specialty finance loans and leases”) that generally are made to large corporate obligors, many of which are publicly
traded, carry investment grade or near-investment grade ratings, and participate in stable industries nationwide; and
“other” C&I loans that primarily are made to small and mid-size businesses in Metro New York. “Other” C&I loans
are typically made for working capital, business expansion, and the purchase of machinery and equipment.
The repayment of multi-family and CRE loans generally depends on the income produced by the underlying
properties which, in turn, depends on their successful operation and management. To mitigate the potential for credit
100
losses, the Company underwrites its loans in accordance with credit standards it considers to be prudent, looking first
at the consistency of the cash flows being produced by the underlying property. In addition, multi-family buildings,
CRE properties, and ADC projects are inspected as a prerequisite to approval, and independent appraisers, whose
appraisals are carefully reviewed by the Company’s in-house appraisers, perform appraisals on the collateral
properties. In many cases, a second independent appraisal review is performed.
To further manage its credit risk, the Company’s lending policies limit the amount of credit granted to any one
borrower and typically require conservative debt service coverage ratios and loan-to-value ratios. Nonetheless, 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. Accordingly, 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 inspectors or third-party engineers. The
Company seeks to minimize the credit risk on ADC loans by maintaining conservative lending policies and rigorous
underwriting standards. However, if the estimate of value proves to be inaccurate, the cost of completion is greater
than expected, or the length of time to complete and/or sell or lease the collateral property is greater than anticipated,
the property could have a value upon completion that is insufficient to assure full repayment of the loan. This could
have a material adverse effect on the quality of the ADC loan portfolio, and could result in losses or delinquencies. In
addition, the Company utilizes the same stringent appraisal process for ADC loans as it does for its multi-family and
CRE loans.
To minimize the risk involved in specialty finance lending and leasing, the Company participates in syndicated
loans that are brought to it, and equipment loans and leases that are assigned to it, by a select group of nationally
recognized sources who have had long-term relationships with its experienced lending officers. Each of these credits
is secured with a perfected first security interest or outright ownership in the underlying collateral, and structured as
senior debt or as a non-cancelable lease. To further minimize the risk involved in specialty finance lending and leasing,
each transaction is re-underwritten. In addition, outside counsel is retained to conduct a further review of the
underlying documentation.
To minimize the risks involved in other C&I lending, the Company underwrites such loans on the basis of the
cash flows produced by the business; requires that such loans be collateralized by various business assets, including
inventory, equipment, and accounts receivable, among others; and typically requires personal guarantees. However,
the capacity of a borrower to repay such a C&I loan is substantially dependent on the degree to which the business is
successful. In addition, the collateral underlying such loans may depreciate over time, may not be conducive to
appraisal, or may fluctuate in value, based upon the results of operations of the business.
Included in non-covered loans held for investment at December 31, 2017, were loans of $59.5 million to
officers, directors, and their related interests and parties. There were no loans to principal shareholders at that date.
At December 31, 2016, the Company had non-covered purchased credit-impaired (“PCI”) loans, with a carrying
value of $5.8 million and an unpaid principal balance of $7.0 million at that date. PCI loans had been covered under
the LSA with the FDIC that expired in March 2015 and had been included in non-covered loans. Such loans were
accounted for under ASC 310-30 and were initially measured at fair value, which included 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. There
were no such loans accounted for under ASC 310-30 at December 31, 2017.
Loans Held for Sale
At December 31, 2017 the Company had loans held for sale of $35.3 million as compared to $409.2 million at
December 31, 2016. The decline reflects the sale of its mortgage banking business, which was acquired as part of its
2009 FDIC-assisted acquisition of AmTrust and was reported under the Company’s Residential Mortgage Banking
segment, to Freedom. Accordingly, on September 29, 2017, the sale was completed with proceeds received in the
amount of $226.6 million, resulting in a gain of $7.4 million, which is included in “Non-Interest Income” in the
accompanying Consolidated Statements of Operations and Comprehensive Income (Loss). Freedom acquired both the
Company’s origination and servicing platforms, as well as its mortgage servicing loan portfolio of $20.5 billion and
related MSR asset of $208.8 million.
101
The Community Bank’s mortgage banking operations originated, aggregated, sold, and serviced one-to-four
family loans. Community banks, credit unions, mortgage companies, and mortgage brokers used its proprietary web-
accessible mortgage banking platform to originate and close one-to-four family loans nationwide. These loans were
generally sold to GSEs, servicing retained. To a much lesser extent, the Community Bank used its mortgage banking
platform to originate jumbo loans.
Asset Quality
The following table presents information regarding the quality of the Company’s non-covered loans held for
investment at December 31, 2017:
Loans
30-89 Days
Past Due(1)
$1,258
13,227
585
Non-
Accrual
Loans (1)
$11,078
6,659
1,966
Loans
90 Days or More
Delinquent and
Still Accruing
Interest
$--
--
--
Total
Past Due
Loans
Total Loans
Current
Loans
Receivable
$12,336 $28,062,373 $28,074,709
7,322,226
19,886 7,302,340
477,228
474,677
2,551
--
6,200
2,711
8
$17,789
47,768
11
$73,682
--
--
--
$--
6,200
429,625
435,825
50,479
19
$91,471
1,990,095
2,040,574
8,460
$38,267,551 $38,359,022
8,441
(in thousands)
Multi-family
Commercial real estate
One-to-four family
Acquisition, development,
and construction
Commercial and industrial(1)
(2)
Other
Total
(1) Includes $2.7 million and $46.7 million of taxi medallion-related loans that were 30 to 89 days past due and 90 days or more
past due, respectively.
(2) Includes lease financing receivables, all of which were current.
The following table presents information regarding the quality of the Company’s non-covered loans held for
investment (excluding non-covered PCI loans) at December 31, 2016:
Loans
30-89 Days
Past Due(1)
$ 28
--
2,844
Non-
Accrual
Loans (1)
$13,558
9,297
9,679
Loans
90 Days or More
Delinquent and
Still Accruing
Interest
$--
--
--
Total
Past Due
Loans
Total Loans
Current
Loans
Receivable
$13,586 $26,931,466 $26,945,052
7,724,362
381,081
9,297 7,715,065
12,523
368,558
--
6,200
7,263
248
$10,383
16,422
1,313
$56,469
--
--
--
$--
6,200
374,994
381,194
23,685
1,561
$66,852
1,876,760 1,900,445
18,305
$37,283,587 $37,350,439
16,744
(in thousands)
Multi-family
Commercial real estate
One-to-four family
Acquisition, development,
and construction
Commercial and industrial(1)
(2)
Other (3)
Total
(1) Excludes $6 thousand and $869 thousand of non-covered PCI loans that were 30 to 89 days past due and 90 days or more
past due, respectively.
(2) Includes lease financing receivables, all of which were current.
(3) Includes $6.8 million and $15.2 million of taxi medallion loans that were 30 to 89 days past due and 90 days or more past
due, respectively.
102
The following table summarizes the Company’s portfolio of non-covered loans held for investment by credit
quality indicator at December 31, 2017:
Mortgage Loans
Other Loans
(in thousands)
Credit Quality Indicator:
Multi-
Family
Commercial
Real Estate
One-to-Four
Family
Acquisition,
Development,
and
Construction
Total
Mortgage
Loans
Commercial
and
Industrial(1)
Other
Total Other
Loans
Pass
Special mention
Substandard
Doubtful
Total
$27,874,330 $7,255,100
47,123
125,752
20,003
74,627
--
--
$28,074,709 $7,322,226
$471,571
3,691
1,966
--
$477,228
$344,040
76,033
15,752
--
$435,825
$35,945,041 $1,925,527
20,883
252,599
94,164
112,348
--
--
$36,309,988 $2,040,574
$8,449 $1,933,976
20,883
94,175
--
$8,460 $2,049,034
--
11
--
(1) Includes lease financing receivables, all of which were classified as “pass.”
The following table summarizes the Company’s portfolio of non-covered loans held for investment (excluding
non-covered PCI loans) by credit quality indicator at December 31, 2016:
Mortgage Loans
Other Loans
(in thousands)
Credit Quality Indicator:
Multi-
Family
Commercial
Real Estate
One-to-Four
Family
Acquisition,
Development,
and
Construction
Total
Mortgage
Loans
Commercial
and
Industrial(1)
Other
Total Other
Loans
Pass
Special mention
Substandard
Doubtful
Total
$26,754,622 $7,701,773
12,604
164,325
9,985
26,105
--
--
$26,945,052 $7,724,362
$371,179
--
9,902
--
$381,081
$341,784
33,210
6,200
--
$381,194
$35,169,358 $1,771,975
54,979
210,139
73,491
52,192
--
--
$35,431,689 $1,900,445
--
1,313
--
$16,992 $1,788,967
54,979
74,804
--
$18,305 $1,918,750
(1) Includes lease financing receivables, all of which were classified as “pass.”
The preceding classifications are the most current ones available and generally have been updated within the
last twelve months. In addition, they follow regulatory guidelines and can generally be described as follows: pass
loans are of satisfactory quality; special mention loans have potential weaknesses that deserve management’s close
attention; 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 possibility that the Company will
sustain some loss); and doubtful loans, based on existing circumstances, have weaknesses that make collection or
liquidation in full highly questionable and improbable. In addition, one-to-four family loans are classified based on
the duration of the delinquency.
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
2017
$ 4,974
(2,904 )
$ 2,070
December 31,
2016
$ 3,128
(1,708 )
$ 1,420
2015
$ 2,288
(1,574 )
$ 714
The Company is required to account for certain held-for-investment loan modifications and restructurings as
TDRs. In general, a modification or restructuring of a loan constitutes a TDR if the Company grants a concession to
a borrower experiencing financial difficulty. A loan modified as a TDR generally is placed on non-accrual status until
the Company determines that future collection of principal and interest is reasonably assured, which requires, among
other things, that the borrower demonstrate performance according to the restructured terms for a period of at least six
consecutive months.
In an effort to proactively manage delinquent loans, the Company has selectively extended to certain borrowers
concessions such as rate reductions, extension of maturity dates, and forbearance agreements. As of December 31,
103
2017, loans on which concessions were made with respect to rate reductions and/or extension of maturity dates
amounted to $44.6 million; loans on which forbearance agreements were reached amounted to $1.0 million.
The following table presents information regarding the Company’s TDRs as of December 31, 2017 and 2016:
Accruing
(in thousands)
Loan Category:
$ 824
Multi-family
--
Commercial real estate
One-to-four family
--
Acquisition, development, and construction 8,652
177
Commercial and industrial
--
Other
$9,653
Total
December 31,
2017
Non-
Accrual
Total
Accruing
2016
Non-
Accrual
Total
368
1,066
--
26,408
--
$ 8,061 $ 8,885
368
1,066
8,652
26,585
--
$35,903 $45,556
$1,981 $ 8,755 $10,736
1,861
1,971
--
5,150
202
$3,466 $16,454 $19,920
--
222
--
1,263
--
1,861
1,749
--
3,887
202
The eligibility of a borrower for work-out concessions of any nature depends upon the facts and circumstances
of each loan, which may change from period to period, and involves judgment by Company personnel regarding the
likelihood that the concession will result in the maximum recovery for the Company.
The financial effects of the Company’s TDRs for the twelve months ended December 31, 2017, 2016, and 2015
are summarized as follows:
For the Twelve Months Ended December 31, 2017
Weighted Average
Interest Rate
(dollars in thousands)
Loan Category:
One-to-four family
Acquisition, development,
and construction
Commercial and industrial
Total
Number
of Loans
Pre-Modification
Recorded
Investment
Post-Modification
Recorded
Investment
Pre-
Modification
Post-
Modification
Charge-off
Amount
Capitalized
Interest
4
2
65
71
$
810
$
986
5.93 %
2.21%
$
--
8,652
52,179
$ 61,641
8,652
26,409
$ 36,047
5.50
3.36
5.50
3.26
--
14,273
$14,273
$ 12
--
--
$ 12
For the Twelve Months Ended December 31, 2016
Weighted Average
Interest Rate
(dollars in thousands)
Loan Category:
Multi-family
One-to-four family
Commercial and industrial
Total
Number
of Loans
Pre-Modification
Recorded
Investment
Post-Modification
Recorded
Investment
Pre-
Modification
Post-
Modification
Charge-off
Amount
Capitalized
Interest
1
5
7
13
$ 9,340
900
4,697
$ 14,937
$ 8,129
1,036
3,935
$ 13,100
4.63 %
4.26
3.22
4.00%
2.65
3.19
$ --
--
170
$170
$ --
11
--
$ 11
For the Twelve Months Ended December 31, 2015
Weighted Average
Interest Rate
(dollars in thousands)
Loan Category:
One-to-four family
Commercial and industrial
Other
Total
Number
of Loans
Pre-Modification
Recorded
Investment
Post-Modification
Recorded
Investment
Pre-
Modification
Post-
Modification
Charge-off
Amount
Capitalized
Interest
4
2
2
8
568
$
1,345
193
$ 2,106
$
619
1,312
213
$ 2,144
4.02 %
3.40
4.58
2.72%
3.52
2.00
$ --
33
--
$ 33
$ 6
--
2
$ 8
104
At December 31, 2017, seven C&I loans, in the amount of $1.6 million that had been modified as a TDR during
the twelve months ended at that date was in payment default. At December 31, 2016, none of the loans that had been
modified as a TDR during the twelve months ended at that date were in payment default. At December 31, 2015, one
home equity loan in the amount of $143,000 that had been modified as a TDR during the twelve months ended at that
date was in payment default. A loan is considered to be in payment default once it is 30 days contractually past due
under the modified terms.
The Company does not consider a payment to be in default when the loan is in forbearance, or otherwise granted
a delay of payment, when the agreement to forebear or allow a delay of payment is part of a modification.
Subsequent to the modification, the loan is not considered to be in default until payment is contractually past
due in accordance with the modified terms. However, the Company does consider a loan with multiple modifications
or forbearance periods to be in default, and would also consider a loan to be in default if the borrower were in
bankruptcy or if the loan were partially charged off subsequent to modification.
Covered Loans
The Company sold its covered loan portfolio during the third quarter of 2017; therefore, the Company did not
have any covered loans outstanding as of December 31, 2017.
The Company referred to certain loans acquired in the AmTrust and Desert Hills transactions as “covered loans”
because the Company was being reimbursed for a substantial portion of losses on these loans under the terms of the
LSA. Covered loans were accounted for under ASC 310-30 and were initially measured at fair value, which included
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.
The following table presents the carrying value of covered loans which were acquired in the acquisitions of
AmTrust and Desert Hills as of December 31, 2016.
(dollars in thousands)
Loan Category:
One-to-four family
Other loans
Total covered loans
Amount
$1,609,635
88,498
$1,698,133
Percent of
Covered Loans
94.8 %
5.2
100.0 %
At December 31, 2016, the unpaid principal balance of covered loans was $2.1 billion and the carrying value of
such loans was $1.7 billion.
At December 31, 2016, the Company estimated the fair values of the AmTrust and Desert Hills loan portfolios,
which represented the expected cash flows from the portfolios, discounted at market-based rates. In estimating such
fair values, the Company: (a) calculated the contractual amount and timing of undiscounted principal and interest
payments (the “undiscounted contractual cash flows”); and (b) estimated the expected amount and timing of
undiscounted principal and interest payments (the “undiscounted expected cash flows”). The amount by which the
undiscounted expected cash flows exceed the estimated fair value (the “accretable yield”) was accreted into interest
income over the lives of the loans. The amount by which the undiscounted contractual cash flows exceed the
undiscounted expected cash flows is referred to as the “non-accretable difference.” The non-accretable difference
represented an estimate of the credit risk in the loan portfolios at the respective acquisition dates.
The accretable yield was 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 increased or decreased the amount of interest income expected to be collected,
depending on the direction of interest rates. Prepayments affected the estimated lives of covered loans and could have
changed 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 were driven by the credit outlook and by actions that may be taken
with borrowers. As of the date of the sale, the accretable yield was reduced to zero.
105
On a quarterly basis, the Company had evaluated the estimates of the cash flows it expected to collect. Expected
future cash flows from interest payments were based on variable rates at the time of the quarterly evaluation. Estimates
of expected cash flows that were impacted by changes in interest rate indices for variable rate loans and prepayment
assumptions were treated as prospective yield adjustments and included in interest income. In the twelve months ended
December 31, 2017, changes in the accretable yield for covered loans were as follows:
(in thousands)
Balance at beginning of period
Accretion
Reclassification to non-accretable difference for the six
months ended June 30, 2017
Changes in expected cash flows due to the sale of the covered
loan portfolio
Balance at end of period
Accretable Yield
$ 647,470
(72,842 )
(11,381 )
(563,247 )
--
$
In the preceding table, the line item “Reclassification to non-accretable difference for the six months ended
June 30, 2017” includes changes in cash flows that the Company expects to collect due to changes in prepayment
assumptions, changes in interest rates on variable rate loans, and changes in loss assumptions. As of the Company’s
most recent quarterly evaluation, prepayment assumptions increased, which resulted in a decrease in future expected
interest cash flows and, consequently, a decrease in the accretable yield. The effect of this decrease was partially offset
with an improvement in the underlying credit assumptions and the resetting of rates on variable rate loans at a slightly
higher level, which resulted in an increase in future expected interest cash flows and, consequently, an increase in the
accretable yield.
Reflecting the foreclosure of certain loans acquired in the AmTrust and Desert Hills acquisitions, the Company
owned certain OREO that was covered under its LSA (“covered OREO”). Covered OREO was initially recorded at
its estimated fair value on the respective dates of acquisition, based on independent appraisals, less the estimated
selling costs. Any subsequent write-downs due to declines in fair value were charged to non-interest expense, and
were partially offset by loss reimbursements under the LSA. Any recoveries of previous write-downs have been
credited to non-interest expense and partially offset by the portion of the recovery that was due to the FDIC. The
Company’s covered OREO was sold during the third quarter of 2017.
The FDIC loss share receivable represented the present value of the estimated losses to be reimbursed by the
FDIC. The estimated losses were based on the same cash flow estimates used in determining the fair value of the
covered loans. The FDIC loss share receivable was reduced as losses on covered loans were recognized and as loss
sharing payments were received from the FDIC. Realized losses in excess of acquisition-date estimates resulted in an
increase in the FDIC loss share receivable. Conversely, if realized losses were lower than the acquisition-date
estimates, the FDIC loss share receivable was reduced by amortization to interest income. Effective October 31, 2017,
the Company and the FDIC completed termination of the LSA.
At December 31, 2017, the Company had no residential mortgage loans in the process of foreclosure. At
December 31, 2016, the Company held residential mortgage loans of $78.6 million that were in the process of
foreclosure. The vast majority of such loans were covered loans.
106
The following table presents information regarding the Company’s covered loans at December 31, 2016 that
were 90 days or more past due:
(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
$124,820
6,645
$131,465
The following table presents information regarding the Company’s covered loans at December 31, 2016 that
were 30 to 89 days past due:
(in thousands)
Covered Loans 30-89 Days Past Due:
One-to-four family
Other loans
Total covered loans 30-89 days past due
$21,112
1,536
$22,648
At December 31, 2016, the Company had $22.6 million of covered loans that were 30 to 89 days past due, and
covered loans of $131.5 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 remainder of the Company’s covered loan portfolio
totaled $1.5 billion at December 31, 2016 and were considered current at that date.
Loans that may have been classified as non-performing loans by AmTrust or Desert Hills were no longer
classified as non-performing by the Company because, at the respective dates of acquisition, the Company believed
that it would fully collect the new carrying value of these loans. The new carrying value represented the contractual
balance, reduced by the portion that was expected to be uncollectible (i.e., the non-accretable difference) and by an
accretable yield (discount) that was recognized as interest income. It is important to note that management’s judgment
was required in reclassifying loans subject to ASC 310-30 as performing loans, and such judgment was dependent on
having a reasonable expectation about the timing and amount of the cash flows to be collected, even if the loan was
contractually past due.
The primary credit quality indicator for covered loans is the expectation of underlying cash flows. In the twelve
months ended December 31, 2016, the Company recorded recoveries of losses on covered loans of $23.7 million. The
recoveries were largely due to an increase in expected cash flows in the acquired portfolios of one-to-four family and
home equity loans, and were partly offset by FDIC indemnification expense of $19.0 million that was recorded in
“Non-interest income.”
NOTE 6: ALLOWANCES FOR LOAN LOSSES
The following tables provide 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)
Allowances for Loan Losses at December 31, 2017:
Loans collectively evaluated for impairment
Mortgage
Other
Total
$ 128,275
$ 29,771
$ 158,046
(in thousands)
Allowances for Loan Losses at December 31, 2016:
Loans individually evaluated for impairment
Loans collectively evaluated for impairment
Acquired loans with deteriorated credit quality
Total
Mortgage
Other
Total
$
--
123,925
11,984
$ 135,909
$
577
32,022
13,483
$ 46,082
$
577
155,947
25,467
$ 181,991
107
The following tables provide additional information regarding the methods used to evaluate the Company’s
loan portfolio for impairment:
(in thousands)
Loans Receivable at December 31, 2017:
Mortgage
Other
Total
Loans individually evaluated for impairment $
Loans collectively evaluated for impairment
31,747
36,278,241
$ 36,309,988
$
48,810
2,000,224
$ 2,049,034
$
80,557
38,278,465
$ 38,359,022
Total
(in thousands)
Loans Receivable at December 31, 2016:
Loans individually evaluated for impairment
Loans collectively evaluated for impairment
Acquired loans with deteriorated credit quality
Total
Mortgage
Other
Total
29,660
$
35,402,029
1,614,755
$ 37,046,444
18,592
$
1,900,158
89,140
$ 2,007,890
48,252
$
37,302,187
1,703,895
$39,054,334
Allowance for Losses on Non-Covered Loans
The following table summarizes activity in the allowance for losses on non-covered loans for the twelve months
ended December 31, 2017 and 2016:
December 31,
2017
2016
(in thousands)
Balance, beginning of period
Charge-offs
Recoveries
Provision for (recovery of) non-
covered loan losses
Balance, end of period
Mortgage
Other
Total
$125,416 $32,874 $158,290
(63,350)
(62,975 )
2,163
1,558
(375 )
605
2,629
60,943
58,314
$128,275 $29,771 $158,046
Mortgage
Other
$124,478 $22,646 $147,124
(3,583 )
2,875
(3,413)
1,603
(170)
1,272
Total
(164)
11,874
$125,416 $32,874 $158,290
12,038
See Note 2, “Summary of Significant Accounting Polices” for additional information regarding the Company’s
allowance for losses on non-covered loans.
108
The following table presents additional information about the Company’s impaired non-covered loans at
December 31, 2017:
(in thousands)
Impaired loans with no related allowance:
Multi-family
Commercial real estate
One-to-four family
Acquisition, development, and construction
Other
Total impaired loans with no related allowance
Impaired loans with an allowance recorded:
Multi-family
Commercial real estate
One-to-four family
Acquisition, development, and construction
Other
Total impaired loans with an allowance
recorded
Total impaired loans:
Multi-family
Commercial real estate
One-to-four family
Acquisition, development, and construction
Other
Total impaired loans
Unpaid
Principal
Balance
Recorded
Investment
$ 8,892
$ 11,470
5,137
10,252
1,966
2,072
15,752
25,952
48,810 104,901
$ 80,557
$ 154,647
$
$
--
--
--
--
--
$
--
$
--
--
--
--
--
--
$ 8,892
5,137
1,966
15,752
48,810
$ 80,557
$ 11,470
10,252
2,072
25,952
104,901
$ 154,647
Related
Allowance
Average
Recorded
Investment
Interest
Income
Recognized
$ --
--
--
--
--
$ --
$ --
--
--
--
--
$ 9,554
3,522
2,489
10,976
43,074
$69,615
$ 495
92
50
575
2,200
$ 3,412
$
$
--
--
--
--
314
--
--
--
--
--
--
$ --
$
314
$
$ --
--
--
--
--
$ --
$ 9,554
3,522
2,489
10,976
43,388
$69,929
$ 495
92
50
575
2,200
$ 3,412
The following table presents additional information about the Company’s impaired non-covered loans at
December 31, 2016:
(in thousands)
Impaired loans with no related allowance:
Multi-family
Commercial real estate
One-to-four family
Acquisition, development, and construction
Other
Total impaired loans with no related allowance
Impaired loans with an allowance recorded:
Multi-family
Commercial real estate
One-to-four family
Acquisition, development, and construction
Other
Total impaired loans with an allowance
recorded
Total impaired loans:
Multi-family
Commercial real estate
One-to-four family
Acquisition, development, and construction
Other
Total impaired loans
Unpaid
Principal
Balance
Recorded
Investment
$ 10,742
$ 13,133
9,117
14,868
3,601
4,267
6,200
15,500
6,739 7,955
$ 36,399
$ 55,723
Related
Allowance
Average
Recorded
Investment
Interest
Income
Recognized
$ --
--
--
--
--
$ --
$11,431
10,461
3,079
1,550
8,261
$34,782
$ 627
143
124
414
92
$ 1,400
$
--
--
--
--
11,853
$
--
--
--
--
13,529
$ --
--
--
--
577
$
--
--
--
--
4,574
$
--
--
--
--
213
$ 11,853
$ 13,529
$577
$ 4,574
$ 213
$ 10,742
9,117
3,601
6,200
18,592
$ 48,252
$ 13,133
14,868
4,267
15,500
21,484
$ 69,252
109
$ --
--
--
--
577
$577
$11,431
10,461
3,079
1,550
12,835
$39,356
$ 627
143
124
414
305
$ 1,613
Allowance for Losses on Covered Loans
Covered loans were reported exclusive of the FDIC loss share receivable. The covered loans acquired in the
AmTrust and Desert Hills acquisitions were reviewed for collectability based on the expectations of cash flows from
these loans. Covered loans were aggregated into pools of loans with common characteristics. In determining the
allowance for losses on covered loans, the Company periodically performed an analysis to estimate the expected cash
flows for each of the pools of loans. The Company recorded a provision for (recovery of) losses on covered loans to
the extent that the expected cash flows from a loan pool had decreased or increased since the acquisition date.
Accordingly, if there was 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 was recorded as a provision for covered loan losses charged to earnings, and the allowance for covered loan
losses was increased. A related credit to non-interest income and an increase in the LSA are recognized at the same
time, and measured based on the applicable loss sharing agreement percentage.
If there was an increase in expected cash flows due to a decrease in estimated credit losses (as compared to the
estimates made at the respective acquisition dates), the increase in the present value of expected cash flows was
recorded as a recovery of the prior-period impairment charged to earnings, and the allowance for covered loan losses
was reduced. A related debit to non-interest income and a decrease in the LSA was recognized at the same time, and
measured based on the applicable LSA percentage.
The following table summarizes activity in the allowance for losses on covered loans for the years ended
December 31, 2017 and 2016:
(in thousands)
Balance, beginning of period
Recovery of losses on covered loans
Balance, end of period
NOTE 7: DEPOSITS
December 31,
2017
$ 23,701
(23,701 )
$ --
2016
$31,395
(7,694 )
$23,701
The following table sets forth the weighted average interest rates for each type of deposit at December 31, 2017
and 2016:
December 31,
2017
2016
Amount
Percent
of Total
Weighted
Average
Interest
Rate
Amount
Percent
of Total
Weighted
Average
Interest
Rate (1)
$12,936,301
5,210,001
8,643,646
2,312,215
44.45 %
17.90
29.70
7.95
0.23 %
0.52
1.31
--
$13,395,080
5,280,374
7,577,170
2,635,279
46.37 % 0.55 %
18.28
26.23
9.12
0.46
1.12
--
$29,102,163 100.00 %
0.58 %
$28,887,903 100.00 % 0.63%
(dollars in thousands)
Interest-bearing checking and
money market accounts
Savings accounts
Certificates of deposit
Non-interest-bearing accounts
Total deposits
At both December 31, 2017 and 2016, the aggregate amount of deposits that had been reclassified as loan
balances (i.e., overdrafts) was $3.1 million.
110
The scheduled maturities of certificates of deposit (“CDs”) at December 31, 2017 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
$5,897,172
2,461,847
209,389
42,485
21,907
10,846
$8,643,646
The following table presents a summary of CDs in amounts of $100,000 or more by remaining term to maturity,
at December 31, 2017:
(in thousands)
Total
3 Months
or Less
$1,333,531
CDs of $100,000 or More Maturing Within
Over 6 to
12 Months
$1,064,316
Over
12 Months
$1,595,643
Over 3 to
6 Months
$1,495,368
Total
$5,488,858
Included in total deposits at December 31, 2017 and 2016 were brokered deposits of $4.0 billion and
$3.9 billion, with weighted average interest rates of 1.37% and 0.62% at the respective year-ends. Brokered money
market accounts represented $2.6 billion and $2.5 billion, respectively, of the December 31, 2017 and 2016 totals, and
brokered interest-bearing checking accounts represented $793.7 million and $1.4 billion, respectively. Brokered CDs
represented $567.8 million of brokered deposits at December 31, 2017. There were no brokered CDs at December 31,
2016.
NOTE 8: BORROWED FUNDS
The following table summarizes the Company’s borrowed funds at December 31, 2017 and 2016:
(in thousands)
Wholesale borrowings:
December 31,
2017
2016
FHLB advances
Repurchase agreements
Federal funds purchased
Total wholesale borrowings
Junior subordinated debentures
Total borrowed funds
$12,104,500
450,000
--
$12,554,500
359,179
$12,913,679
$11,664,500
1,500,000
150,000
$13,314,500
358,879
$13,673,379
Accrued interest on borrowed funds is included in “Other liabilities” in the Consolidated Statements of
Condition and amounted to $19.3 million and $18.1 million, respectively, at December 31, 2017 and 2016.
FHLB Advances
The following table presents an analysis of the contractual maturities of the Company’s outstanding FHLB
advances at December 31, 2017, none of which had callable features.
Contractual Maturity
(dollars in thousands)
Year of Maturity
2018
2019
2020
2021
Total FHLB advances
Amount
$ 3,923,500
4,431,000
3,150,000
600,000
$12,104,500
Weighted Average
Interest Rate
1.51
1.74
2.09
2.21
1.78 %
The Company had no short-term FHLB advances at December 31, 2017. At December 31, 2016, short-term
advances totaled $300.0 million with a weighted average interest rate of 0.81%. During the twelve months ended at
December 31, 2017 and 2016, the average balances of short-term FHLB advances were $3.3 million and
111
$929.4 billion, with weighted average interest rates of 0.82% and 0.60%, respectively. In 2017 and 2016, the interest
expense generated by average short-term FHLB advances was $27,000 and $5.5 million, respectively. During 2015,
the average balance of short-term advances was $2.3 billion with a weighted average interest rate of 0.42%, generating
interest expense of $9.8 million.
At December 31, 2017 and 2016, respectively, the Banks had combined unused lines of available credit with
the FHLB-NY of up to $7.1 billion and $7.5 billion. There were no overnight FHLB-NY advances at December 31,
2017. At December 31, 2016, the Banks had $10.0 million outstanding FHLB-NY advances with a weighted average
interest rate of 0.78%. During the twelve months ended December 31, 2016, the average balance of overnight advances
amounted to $426.5 million with a weighted average interest rate of 0.59%, generating interest expense of
$2.5 million. During 2015, the average balance of overnight advances was $572.7 million with a weighted average
interest rate of 0.44%. The interest expense generated by average overnight advances was $2.5 million in 2015.
Total FHLB advances generated interest expense of $186.0 million, $172.0 million, and $230.6 million, in the
years ended December 31, 2017, 2016, and 2015, respectively.
Repurchase Agreements
The following table presents an analysis of the contractual maturities of the Company’s outstanding repurchase
agreements accounted for as secured borrowings at December 31, 2017. None of these repurchase agreements had
callable features.
(dollars in thousands)
Year of Maturity
2018
2019
Total
Contractual Maturity
Amount
$250,000
200,000
$450,000
Weighted Average
Interest Rate
3.04
1.69
2.44 %
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, 2017:
Mortgage-Related and
Other Securities
GSE Debentures and
U.S. Treasury
Obligations
(dollars in thousands)
Contractual Maturity
Greater than 90 days
Amount
$450,000
Weighted Average
Interest Rate
2.44%
Amortized
Cost
$216,076
Fair Value
$217,383
Amortized
Cost
$248,065
Fair Value
$249,489
The Company had no short-term repurchase agreements outstanding at December 31, 2017 or 2016. During the
year ended December 31, 2015, the Company had average short-term repurchase agreements outstanding of
$197.3 million with a weighted average interest rate of 0.31%, generating interest expense of $614,000.
At December 31, 2017 and 2016, the accrued interest on repurchase agreements amounted to $760,000 and
$1.2 million, respectively. The interest expense on repurchase agreements was $16.4 million, $23.3 million, and
$99.9 million, in the years ended December 31, 2017, 2016, and 2015, respectively.
Federal Funds Purchased
There were no federal funds purchased outstanding at December 31, 2017. At December 31, 2016, the balance
of federal funds purchased was $150.0 million with a weighted average interest rate of 0.75%.
In 2017 and 2016, respectively, the average balances of federal funds purchased were to $47.9 million and
$525.4 million, with weighted average interest rates of 0.87% and 0.51%. In 2015, the average balance of federal
funds purchased amounted to $588.8 million with a weighted average interest rate of 0.26%. The interest expense
produced by federal funds purchased was $418,000, $2.7 million, and $1.5 million for the years ended December 31,
2017, 2016, and 2015, respectively.
112
Junior Subordinated Debentures
At December 31, 2017 and 2016, the Company had $359.2 million and $358.9 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 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, 2017:
Interest
Rate
of Capital
Securities
and
Debentures
Junior
Subordinated
Debentures
Amount
Outstanding
Capital
Securities
Amount
Outstanding
(dollars in thousands)
Date of
Original Issue Stated Maturity
First Optional
Redemption Date
6.000 %
$145,253
$138,902 Nov. 4, 2002
Nov. 1, 2051
Nov. 4, 2007 (1)
3.188
4.838
3.345
123,712
30,928
120,000 Dec. 14, 2006 Dec. 15, 2036 Dec. 15, 2011 (2)
June 15, 2008 (2)
30,000 June 2, 2003
June 15, 2033
59,286
57,500 April 16, 2007 June 30, 2037
June 30, 2012 (2)
$359,179
$346,402
Issuer
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
(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.
The Bifurcated Option Note Unit SecuritiESSM (“BONUSES units”) included in the preceding table were issued
by the Company on November 4, 2002 at a public offering price of $50.00 per share. Each of the 5,500,000 BONUSES
units offered consisted 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 Statements 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 was
treated as an original issue discount, and is being amortized to interest expense over the 49-year life of the capital
securities on a level-yield basis. At December 31, 2017, this discount totaled $66.4 million.
The other three trust preferred securities noted in the preceding table 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”). 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,
2017, all dividends were current.
Interest expense on junior subordinated debentures was $19.6 million, $18.5 million, and $17.6 million,
respectively, for the years ended December 31, 2017, 2016, and 2015.
113
NOTE 9: FEDERAL, STATE, AND LOCAL TAXES
The following table summarizes the components of the Company’s net deferred tax asset (liability) at
December 31, 2017 and 2016:
(in thousands)
Deferred Tax Assets:
December 31,
2017
2016
Allowance for loan losses
Compensation and related benefit obligations
Acquisition accounting and fair value adjustments on securities
$
46,239 $ 75,605
27,877
13,010
(including OTTI)
Acquisition accounting and fair value adjustments on loans
(including the FDIC loss share receivable)
Non-accrual interest
Restructuring and retirement of borrowed funds
Net operating loss carryforwards
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 securities
$
$
--
14,455
--
818
1,105
2,967
15,953
80,092
----
7,496
4,791
6,957
5,664
18,351
161,196
--
80,092 $ 161,196
(1,704) $
(1,655 )
(including OTTI)
Undistributed earnings of subsidiaries
Mortgage servicing rights
Premises and equipment
Prepaid pension cost
Leases
Other
Gross deferred tax liabilities
Net deferred tax asset (liability)
(17,090)
(19,003)
(1,794)
(12,907)
(24,324)
(78,682)
(9,385)
--
--
(65,975 )
(19,310 )
(30,962 )
(65,214 )
(10,691 )
$ (164,889) $ (193,807 )
$ (84,797) $ (32,611 )
The deferred tax liability represents the anticipated federal, state, and local tax expenses or benefits that are
expected to be realized in future years upon the utilization of the underlying tax attributes comprising said balances.
At December 31, 2017, the net deferred tax liability is included in “Other liabilities” in the Consolidated Statements
of Condition. At December 31, 2016, the net federal deferred tax liability is included in “Other liabilities,” and the net
state and local deferred tax asset is included in “Other assets” in the Consolidated Statements of Condition.
At December 31, 2017, the Company had a New York City net operating loss carryforward in the amount of
$44.9 million available through 2035. The net operating loss carryforward is available to offset future taxable income.
The Company has determined that all deductible temporary differences and net operating loss carryforwards are
more likely than not to provide a benefit in reducing future federal, state, and local tax liabilities, as applicable. The
Company has reached this determination based on its history of reporting positive taxable income in all relevant tax
jurisdictions, the length of time available to utilize the net operating loss carryforwards, and the recognition of taxable
income in future periods from taxable temporary differences.
114
The following table summarizes the Company’s income tax expense (benefit) for the years ended December 31,
2017, 2016, and 2015:
(in thousands)
Federal – current
State and local – current
Total current
Federal – deferred
State and local – deferred
Total deferred
Income tax expense (benefit) reported in net income
Income tax expense (benefit) reported in stockholders’ equity related to:
Employee stock plans
Securities available-for-sale
Pension liability adjustments
Non-credit portion of OTTI losses
Total income taxes
2017
$153,587
26,983
180,570
3,498
17,946
21,444
202,014
--
28,495
2,234
13
$232,756
December 31,
2016
$216,182
20,799
236,981
18,203
26,543
44,746
281,727
--
(2,687 )
2,924
49
$282,013
2015
$(53,273 )
(295 )
(53,568 )
468
(31,757 )
(31,289 )
$(84,857 )
(2,486 )
131
(1,161 )
44
$(88,329 )
The following table presents a reconciliation of statutory federal income tax expense (benefit) to combined
actual income tax expense (benefit) reported in net income for the years ended December 31, 2017, 2016, and 2015:
(in thousands)
Statutory federal income tax at 35%
State and local income taxes, net of federal income tax effect (1)
Effect of tax law changes
Effect of tax deductibility of ESOP
Non-taxable income and expense of BOLI
Federal tax credits
Adjustments relating to prior tax years
Merger-related expenses
Other, net
Total income tax expense (benefit)
2017
$233,875
29,204
(41,943 )
(5,083 )
(9,529 )
(1,386 )
144
--
(3,268 )
$202,014
December 31,
2016
$271,995
30,772
--
(6,452)
(10,808)
(1,607)
(668)
(850)
(655)
$281,727
2015
$(46,204 )
(20,835 )
--
(7,321 )
(9,575 )
(1,554 )
(248 )
850
30
$(84,857 )
(1) Includes income tax (benefit) expense for the years ended December 31, 2015 of $(1.4) million for adjustments to deferred
taxes necessitated by changes in tax laws of New York City that were enacted in April 2015.
On December 22, 2017 H.R. 1, originally known as the Tax Cuts and Jobs Act, (the “Tax Reform Act”) was
enacted. The Tax Reform Act significantly revised the U.S. corporate income tax regime by, among other things:
• Lowering of the U.S. corporate tax rate from 35% to 21% effective January 1, 2018.
• Repeal of corporate alternative minimum tax (AMT) for tax years beginning after December 31, 2017.
• Reduction of the corporate dividends received deduction of 80% and 70% to 65% and 50%, respectively,
for tax years beginning after December 31, 2017.
• Disallowance of the deduction for FDIC premiums for banks with total consolidated assets over $50 billion
effective tax years beginning after December 31, 2017.
• Allows for full expensing of qualified property acquired or placed in service between September 27, 2017
and January 1, 2023.
• Limitation of net operating loss (NOL) carryforwards to 80% of taxable income for losses arising in tax
years beginning after December 31, 2017 and prohibiting NOL carrybacks for losses arising in tax years
beginning after December 31, 2017 and providing an unlimited life for NOL carryforwards.
U.S. GAAP requires that the impact of tax legislation be recognized in the period in which the law was enacted.
As a result of the Tax Reform Act, the Company recorded a tax benefit of $42 million due to the net impact of
remeasurement of tax attributes affected by the enactment of the Tax Reform Act.
115
In March 2014, tax legislation was enacted that changed the manner in which financial institutions and their
affiliates are taxed in New York State. In April 2015, similar legislation was enacted for New York City. Most of the
provisions were effective for fiscal years beginning in 2015. The most significant changes affecting the Company
were as follows:
• The tax rate applied to apportioned New York State taxable income was reduced from 7.1% to 6.5%,
effective for fiscal years beginning in 2016. For financial institutions with total assets below $100 billion,
the New York City statutory tax rate dropped from 9% to 8.85%.
• Tax is now determined by measuring the apportioned income of the combined group of all domestic
affiliates that participate in a unitary business relationship.
• Taxable income is apportioned based on the location of the taxpayer’s customers, with special rules for
income from certain financial transactions.
• Thrift institutions that maintain a qualified residential loan portfolio are entitled to a specially computed
modification that reduces taxable income.
• New York City taxable income is reduced by net interest income earned on residential portfolio loans that
are secured by rent-regulated units or situated in low-income communities in New York City. This benefit
is gradually phased out for financial institutions with total assets between $100 billion and $150 billion.
• An alternative tax of 0.15% on apportioned capital is imposed to the extent that it exceeds the tax on
apportioned income. The New York State alternative tax is capped at $5 million for a tax year and is
gradually phased out over six years. The New York City alternative tax is capped at $10 million for a tax
year and is not phased out.
• A reduction to taxable income from the utilization of a net operating loss carryforward is determined
without reference to, nor limitation based on, a federal tax deduction of such carryforward.
The Company invests in affordable housing projects through limited partnerships that generate federal Low
Income Housing Tax Credits. The balances of these investments, which are included in “Other assets” in the
Consolidated Statements of Condition, were $46.2 million and $42.4 million, respectively, at December 31, 2017 and
2016, and included commitments of $23.9 million and $21.9 million that are expected to be funded over the next four
years. The Company elected to apply the proportional amortization method to these investments. Recognized in the
determination of income tax (benefit) expense from operations for the years ended December 31, 2017, 2016, and
2015 were $4.5 million, $4.0 million, and $3.2 million, respectively, of affordable housing tax credits and other tax
benefits, and an offsetting $3.1 million, $3.0 million, and $2.4 million, respectively, for the amortization of the related
investments. No impairment losses were recognized in relation to these investments for the years ended December 31,
2017, 2016, and 2015.
GAAP 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, 2017, the Company had $33.7 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, 2017 that would have affected the
effective tax rate, if recognized, was $26.6 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 Operations and Comprehensive Income (Loss). During the
years ended December 31, 2017, 2016, and 2015, the Company recognized income tax expense attributed to interest
and penalties of $1.8 million, $1.2 million, and $1.1 million, respectively. Accrued interest and penalties on tax
liabilities were $8.9 million and $6.9 million, respectively, at December 31, 2017 and 2016.
116
The following table summarizes changes in the liability for unrecognized gross tax benefits for the years ended
December 31, 2017, 2016, and 2015:
(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
2017
$33,487
4,332
1,398
(5,101 )
(435 )
$33,681
December 31,
2016
2015
$30,456 $24,779
3,827
2,935
(963 )
(122 )
$33,487 $30,456
1,304
1,997
(270)
--
The Company and its subsidiaries have filed tax returns in many states. The following are the more significant
tax filings that are open for examination:
•
Federal tax filings for tax years 2014 through the present;
• New York State tax filings for tax years 2010 through the present;
• New York City tax filings for tax years 2011 through the present; and
• New Jersey tax filings for tax years 2013 through the present.
In addition to other state audits, the Company is currently under examination by the following taxing
jurisdictions of significance to the Company:
• New York State for the tax years 2010 through 2014; and
• New York City for the tax years 2011 and 2012.
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, including decreases of up to $20 million due to completion
of tax authorities’ exams and the expiration of statutes of limitations.
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, 2017, the Community Bank’s federal tax bad debt base-year reserve was
$61.5 million, with a related federal deferred tax liability of $12.9 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 10: COMMITMENTS AND CONTINGENCIES
Pledged Assets
The Company pledges securities to serve as collateral for its repurchase agreements, among other purposes. At
December 31, 2017, the Company had pledged available for sale mortgage-related securities and other securities with
carrying values of $917.2 million and $346.0 million, respectively. At December 31, 2016, the Company had pledged
mortgage-related securities and other securities held to maturity with carrying values of $1.6 billion and
$346.7 million, respectively. In addition, the Company had $30.1 billion and $29.4 billion of loans pledged to the
FHLB-NY to serve as collateral for its wholesale borrowings at the respective year-ends.
Loan Commitments and Letters of Credit
At December 31, 2017 and 2016, the Company had commitments to originate loans, including unused lines of
credit, of $1.9 billion and $2.1 billion, respectively. The majority of the outstanding loan commitments at those dates
were expected to close within 90 days. In addition, the Company had commitments to originate letters of credit totaling
$339.4 million and $324.3 million at December 31, 2017 and 2016.
117
The following table summarizes the Company’s off-balance sheet commitments to originate loans and letters of
credit at December 31, 2017:
(in thousands)
Mortgage Loan Commitments:
Multi-family and commercial real estate
One-to-four family
Acquisition, development, and construction
Total mortgage loan commitments
Other loan commitments
Total loan commitments
Commercial, performance stand-by, and financial stand-by letters of credit
Total commitments
Lease Commitments
$ 377,782
3,819
239,504
$ 621,105
1,314,170
$1,935,275
339,403
$2,274,678
At December 31, 2017, 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 rents, 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. The remaining
projected minimum annual rental commitments under these agreements, exclusive of taxes and other charges, are
summarized as follows:
(in thousands)
2018
2019
2020
2021
2022 and thereafter
Total minimum future rentals
$ 29,786
26,425
20,211
16,523
66,555
$159,500
The rental expense under these leases, which is included in “Occupancy and equipment expense” in the
Consolidated Statements of Operations and Comprehensive Income (Loss), amounted to $33.2 million, $32.6 million,
and $32.8 million, respectively, in the years ended December 31, 2017, 2016, and 2015. Rental income on Company-
owned properties, netted in occupancy and equipment expense, was approximately $9.5 million, $7.1 million, and
$3.7 million in the corresponding periods. There was no minimum future rental income under non-cancelable sub-
lease agreements at December 31, 2017.
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, 2017:
(in thousands)
Financial stand-by letters of credit
Performance stand-by letters of credit
Commercial letters of credit
Total letters of credit
Expires
Within One
Year
$19,996
5,786
3,063
$28,845
Expires
After One
Year
$55,202
--
209
$55,411
Total
Outstanding
Amount
$75,198
5,786
3,272
$84,256
Maximum Potential
Amount of
Future Payments
$267,174
5,775
66,454
$339,403
The maximum potential amount of future payments represents the notional amounts that could be funded under
the guarantees and indemnifications if there were a total default by the guaranteed parties or if indemnification
provisions were triggered, as applicable, without consideration of possible recoveries under recourse provisions or
from collateral held or pledged.
118
The Company collects fees upon the issuance of commercial and stand-by letters of credit. Fees for stand-by
letters of credit fees are initially recorded by the Company as a liability, and are recognized as income periodically
through the respective expiration dates. Fees for commercial letters of credit are collected and recognized as income
at the time that they are issued and upon payment of each set of documents presented. In addition, the Company
requires adequate collateral, typically in the form of cash, real property, and/or personal guarantees upon its issuance
of Irrevocable Stand-by Letters of Credit. Commercial letters of credit are primarily secured by the goods being
purchased in the underlying transaction and are also personally guaranteed by the owner(s) of the applicant company.
At December 31, 2017, the Company had commitments to purchase GNMA securities of $29.4 million.
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 11: 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. There were no changes in the carrying amount of goodwill during the years
ended December 31, 2017 or 2016. Goodwill totaled $2.4 billion at each of these dates.
Core Deposit Intangibles
CDI is a measure of the value of checking and savings deposits acquired in a business combination. As
previously noted, the Company has recognized CDI stemming from its various business combinations with other
banks and thrifts. 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 acquired, 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. As of December 31, 2017, all CDI was fully amortized. For the year ended December 31, 2017,
amortization expenses related to CDI totaled $208,000. The Company evaluates such identifiable intangibles for
impairment when an indication of impairment exists. No impairment charges were required to be recorded in 2017,
2016, or 2015. If an impairment loss is determined to exist in the future, the loss will be recorded in “Non-interest
expense” in the Consolidated Statements of Operations and Comprehensive Income (Loss) for the period in which
such impairment is identified.
Mortgage Servicing Rights
The Company records a separate servicing asset representing the right to service third-party loans. Such MSRs
are initially recorded at their fair value as a component of the sale proceeds. The fair values of MSRs are based on an
analysis of discounted cash flows that incorporates estimates of (1) market servicing costs, (2) market-based estimates
of ancillary servicing revenue, (3) market-based prepayment rates, and (4) market profit margins.
MSRs are subsequently measured at either fair value or are amortized in proportion to, and over the period of,
estimated net servicing income. The Company elects one of those methods on a class basis. A class is determined
based on (1) the availability of market inputs used in determining the fair value of servicing assets, and/or (2) the
Company’s method for managing the risks of servicing assets.
The Company completed the sale of its mortgage banking business in the third quarter of 2017, and consequently
sold substantially all of its mortgage servicing assets. Accordingly, the value of the MSR asset declined to $6.1 million
at December 31, 2017, compared to $234.0 million at December 31, 2016. These balances consisted of two classes of
MSRs for which the Company separately manages the economic risk: residential MSRs and participation MSRs (i.e.,
MSRs on loans sold through participations).
Residential MSRs are carried at fair value, and at December 31, 2017 reflected only loans sold through the
FHLB’s Mortgage Partnership Finance Program, with changes in fair value recorded as a component of non-interest
income in each period. MSRs do not trade in an active open market with readily observable prices. Accordingly, the
Company utilizes a third-party valuation specialist to determine the fair value of its MSRs. This specialist determines
fair value based on the present value of estimated future net servicing income cash flows, and incorporates 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
119
income. The specialist and the Company evaluate, and periodically adjust, as necessary, these underlying inputs and
assumptions to reflect market conditions and changes in the assumptions that a market participant would consider in
valuing MSRs.
The collective amount of contractually specified servicing fees, late fees, and ancillary fees, which is recorded
as “Mortgage banking income” in the Consolidated Statements of Operations and Comprehensive Income (Loss), was
$1.2 million and $1.3 million, and $941,000 for the years ended December 31, 2017, 2016, and 2015, respectively.
Participation MSRs are initially carried at fair value and are subsequently amortized and carried at the lower of
their fair value or amortized amount. The amortization is recorded in proportion to, and over the period of, estimated
net servicing income, with impairment of those servicing assets evaluated through an assessment of their fair value
via a discounted cash-flow method. The net carrying value is compared to the discounted estimated future net cash
flows to determine whether adjustments should be made to carrying values or amortization schedules. Impairment of
participation MSRs is recognized through a valuation allowance and a charge to current-period earnings if it is
considered to be temporary, or through a direct write-down of the asset and a charge to current-period earnings if it is
considered to be other than temporary. The predominant risk characteristics of the underlying loans that are used to
stratify the participation MSRs for measurement purposes generally include the (1) loan origination date, (2) loan rate,
(3) loan type and size, (4) loan maturity date, and (5) geographic location. Changes in the carrying value of
participation MSRs due to amortization or declines in fair value (i.e., impairment), if any, are reported in “Other
income” in the period during which such changes occur. In the years ended December 31, 2017 and 2016, there was
no impairment related to the Company’s participation MSRs.
The following table presents the changes in the balances of residential MSRs and participation MSRs for the
years ended December 31, 2017 and 2016:
(in thousands)
Carrying value, beginning of year
Additions
Sales
Increase (decrease) in fair value:
Due to changes in interest rates
Due to model assumption changes (1)
Due to loan payoffs
Due to passage of time and other changes
Amortization
Carrying value, end of period
For the Years Ended December 31,
2017
2016
Residential
$ 228,099
18,054
(208,827 )
Participation
$ 5,862
710
--
Residential
$ 243,389
45,588
--
Participation
$ 4,345
3,774
--
(2,096 )
--
(22,610 )
(9,891 )
--
$ 2,729
--
--
--
--
(3,201 )
$ 3,371
3,341
(13,088 )
(33,425 )
(17,706 )
--
$ 228,099
--
--
--
--
(2,257)
$ 5,862
(1) Represents changes in fair value driven by changes to the inputs to the valuation model related to assumed prepayment
speeds.
The following table presents the key assumptions used in calculating the fair value of the Company’s residential
MSRs at the dates indicated:
Expected weighted average life
Constant prepayment speed
Discount rate
Primary mortgage rate to refinance
Cost to service (per loan per year):
Current
30-59 days or less delinquent
60-89 days delinquent
90-119 days delinquent
120 days or more delinquent
December 31,
2017
87 months
2016
82 months
9.81 %
12.00
4.02
$ 70
220
370
470
870
8.70%
10.05
4.11
$ 64
214
364
464
864
The increase in the constant prepayment speed was primarily attributable to an increase in the housing price
index used by the Company’s third-party valuation specialist, suggesting that homebuyer demand has increased and
newly created equity could lead to more refinancing.
120
Reflecting the sale of the mortgage banking business the total unpaid principal balance of loans serviced for
others declined to $3.7 billion at December 31, 2017 from $25.1 billion at December 31, 2016.
NOTE 12: EMPLOYEE BENEFITS
Retirement Plan
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 and renamed the “New York
Community Bancorp Retirement Plan” (the “Retirement Plan”). The pension plan for employees of the former Roslyn
Savings Bank was merged into the Retirement Plan on September 30, 2004. The pension plan for employees of the
former Atlantic Bank of New York was merged into the Retirement Plan on March 31, 2008.
The Retirement 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 individual 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 following table sets forth certain information regarding the Retirement 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 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 (loss) for the
year ended December 31:
Amortization of prior service cost
Amortization of actuarial loss
Net actuarial loss arising during the year
Total recognized in other comprehensive loss for the year (pre-tax)
December 31,
2017
2016
$ 146,429
5,616
8,267
(6,485 )
(2,416 )
$ 151,411
$ 146,618
5,881
611
(6,473)
(208)
$ 146,429
$ 220,740
22,297
--
(6,485 )
(2,416 )
$ 234,136
$ 82,725
$ 211,888
15,533
--
(6,473)
(208)
$ 220,740
$ 74,311
$
--
(8,209 )
2,260
$ (5,949 )
$
--
(9,050 )
706
$ (8,344 )
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)
$
--
73,591
$73,591
$
--
79,541
$ 79,541
In 2018, an estimated $7.2 million of unrecognized net actuarial loss for the Retirement Plan will be amortized
from AOCL into net periodic benefit cost. The comparable amount recognized as net periodic benefit cost in 2017
was $8.2 million. No prior service cost will be amortized in 2018 and none was amortized in 2017. The discount rates
used to determine the benefit obligation at December 31, 2017 and 2016 were 3.4% and 3.9%, 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 the pension benefits are paid. The expected future payments are
121
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 that is published as of the measurement date.
The components of net periodic pension credit were as follows for the years indicated:
(in thousands)
Components of net periodic pension credit:
Interest cost
Expected return on plan assets
Amortization of net actuarial loss
Net periodic pension credit
Years Ended December 31,
2016
2017
2015
$ 5,616
(16,290)
8,209
$ (2,465)
$ 5,881
(15,627 )
9,050
(696 )
$
$ 6,063
(17,559)
8,208
$ (3,288)
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,
2015
2016
2017
4.0 %
4.1 %
3.9 %
8.0
7.5
7.5
As of December 31, 2017, Retirement Plan assets were invested in two diversified investment portfolios of the
Pentegra Retirement Trust (the “Trust”) (formerly known as “RSI Retirement Trust”), a private placement investment
fund.
The Company (in this context, the “Plan Sponsor”) chooses the specific asset allocation for the Retirement Plan
within the parameters set forth in the Trust’s Investment Policy Statement. The long-term investment objectives are
to maintain the Retirement Plan’s assets at a level that will sufficiently cover the Plan Sponsor’s long-term obligations,
and to generate a return on those assets that will meet or exceed the rate at which the Plan Sponsor’s long-term
obligations will grow.
The Retirement Plan allocates its assets in accordance with the following targets:
• To hold 55% of its assets in equity securities via investment in the Trust’s Long-Term Growth—Equity
(“LTGE”) Portfolio, a diversified portfolio that invests in a number of actively and passively managed
equity mutual funds and collective trusts in order to diversify within U.S. and non-U.S. equity markets;
• To hold 44% of its assets in intermediate-term investment-grade bonds via investment in the Trust’s Long-
Term Growth—Fixed Income (“LTGFI”) Portfolio, a diversified portfolio that invests in a number of fixed-
income mutual funds and collective investment trusts, primarily including intermediate-term bond funds
with a focus on U.S. investment grade securities and opportunistic allocations to below-investment grade
and non-U.S. investments; and
• To hold 1% of its assets in a cash-equivalent portfolio for liquidity purposes.
In addition, the Retirement Plan holds Company shares, the value of which is approximately equal to 11% of
the assets that are held by the Trust.
The LTGE and LTGFI portfolios are designed to provide long-term growth of equity and fixed-income assets
with the objective of achieving an investment return in excess of the cost of funding the active life, deferred vesting,
and all 30-year term and longer obligations of retired lives in the Trust. Risk and volatility are further managed in
accordance with the distinct investment objectives of the Trust’s respective portfolios.
122
The following table presents information about the fair value measurements of the investments held by the
Retirement Plan as of December 31, 2017:
(in thousands)
Equity:
Large-cap value (1)
Large-cap growth (2)
Large-cap core (3)
Mid-cap value (4)
Mid-cap growth (5)
Mid-cap core (6)
Small-cap value (7)
Small-cap growth (8)
Small-cap core (9)
International equity (10)
Fixed Income Funds:
Fixed Income – U.S. Core (11)
Intermediate duration (12)
Equity Securities:
Company common stock
Cash Equivalents:
Money market *
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
Significant Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Total
$ 20,959
21,825
14,512
4,668
4,422
4,744
3,530
3,353
6,908
28,113
68,928
23,046
$ --
--
--
--
--
--
--
--
--
--
--
--
$ 20,959
21,825
14,512
4,668
4,422
4,744
3,530
3,353
6,908
28,113
68,928
23,046
24,865
24,865
--
4,263
$ 234,136
1,063
$25,928
3,200
$208,208
$--
--
--
--
--
--
--
--
--
--
--
--
--
--
--
--
--
$--
Includes cash equivalent investments in equity and fixed income strategies.
*
(1) This category contains large-cap stocks with above-average yield. The portfolio typically holds between 60 and 70 stocks.
(2) This category seeks long-term capital appreciation by investing primarily in large growth companies based in the U.S.
(3) 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.
(4) This category employs an indexing investment approach designed to track the performance of the CRSP US Mid-Cap Value
Index.
(5) This category employs an indexing investment approach designed to track the performance of the CRSP US Mid-Cap Growth
Index.
(6) This category seeks to track the performance of the S&P Midcap 400 Index.
(7) This category consists of a selection of investments based on the Russell 2000 Value Index.
(8) This category consists of a selection of investments based on the Russell 2000 Growth Index.
(9) This category consists of an index fund designed to track the Russell 2000, along with a fund investing in readily marketable
securities of U.S. companies with market capitalizations within the smallest 10% of the market universe, or smaller than the
1000th largest US company.
(10) 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. A portion of this category consists of an index fund
designed to track the MSC ACWI ex-US Net Dividend Return Index.
(11) This category currently includes equal investments in three mutual funds, two of which usually hold at least 80% of fund assets
in investment grade fixed income securities, seeking to outperform the Barclays US Aggregate Bond Index while maintaining
a similar duration to that index. The third fund targets investments of 50% or more in mortgage-backed securities guaranteed
by the US government and its agencies.
(12) This category consists of a mutual fund which invest in a diversified portfolio of high-quality bonds and other fixed income
securities, including U.S. Government obligations, mortgage-related and asset backed securities, corporate and municipal
bonds, CMOs, and other securities mostly rated A or better.
123
Current Asset Allocation
The asset allocations for the Retirement Plan as of December 31, 2017 and 2016 were as follows:
Equity securities
Debt securities
Cash equivalents
Total
At December 31,
2016
2017
56 %
59 %
43
39
1
2
100 %
100 %
Determination of Long-Term Rate of Return
The long-term rate of return on Retirement Plan assets assumption was based on historical returns earned by
equities and fixed income securities, and adjusted to reflect expectations of future returns as applied to the Retirement
Plan’s target allocation of asset classes. Equities and fixed income securities were assumed to earn long-term rates of
return in the ranges of 6% to 9% and 3% to 5%, respectively, with an assumed long-term inflation rate of 2.5%
reflected within these ranges. When these overall return expectations are applied to the Retirement Plan’s target
allocations, the result is an expected rate of return of 5% to 7%.
Expected Contributions
The Company does not expect to contribute to the Retirement Plan in 2018.
Expected Future Annuity Payments
The following annuity payments, which reflect expected future service, as appropriate, are expected to be paid
by the Retirement Plan during the years indicated:
(in thousands)
2018
2019
2020
2021
2022
2023 and thereafter
Total
Qualified Savings Plan
$ 7,153
7,301
7,371
7,513
7,565
39,930
$76,833
The Company maintains a defined contribution qualified savings plan in which all full-time employees are able
to participate after three months of service and having attained age 21. No matching contributions are made by the
Company to this plan.
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 Health & Welfare Plan is an unfunded plan and is not expected to hold assets for investment at any time.
Any contributions made to the Health & Welfare Plan are used to immediately pay plan premiums and claims as they
come due.
124
The following table sets 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 (gain)
Premiums and claims paid
Benefit obligation at end of year
Change in plan assets:
Fair value of assets at beginning of year
Employer contribution
Premiums and claims paid
Fair value of assets at end of year
Funded status (included in “Other liabilities”)
December 31,
2017
2016
$ 16,294
--
577
517
(1,039)
$ 16,349
$
--
1,039
(1,039)
--
$
$ (16,349)
$ 17,280
5
639
(673)
(957)
$ 16,294
$
--
957
(957)
--
$
$ (16,294)
Changes recognized in other comprehensive (loss) income for
the year ended December 31:
Amortization of prior service cost
Amortization of actuarial gain
Net actuarial loss (gain) arising during the year
Total recognized in other comprehensive loss for the year (pre-tax)
$ 249
(274)
517
$ 492
249
$
(326)
(673 )
$ (750 )
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)
$ (1,034 )
5,380
$ 4,346
$ (1,283 )
5,137
$ 3,854
The discount rates used in the preceding table were 3.3% and 3.7%, respectively, at December 31, 2017 and
2016.
The estimated net actuarial loss and the prior service liability that will be amortized from AOCL into net periodic
benefit cost in 2018 are $309,000 and $249,000, respectively.
The following table presents 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 past-service liability
Amortization of net actuarial loss
Net periodic benefit cost
Years Ended December 31,
2015
2017
2016
$
--
577
(249 )
274
$ 602
$
5
639
(249 )
326
$ 721
$
4
700
(249 )
383
$ 838
The following table presents 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,
2015
2016
2017
4.0%
3.8 %
3.7 %
6.5
6.5
6.5
5.0
5.0
5.0
2018
2022
2023
125
Had the assumed medical trend rate at December 31, 2017 increased by 1% for each future year, the accumulated
post-retirement benefit obligation at that date would have increased by $736,000, and the aggregate of the benefits
earned and the interest components of 2017 net post-retirement benefit cost would each have increased by $28,000.
Had the assumed medical trend rate decreased by 1% for each future year, the accumulated post-retirement benefit
obligation at December 31, 2017 would have declined by $623,000, and the aggregate of the benefits earned and the
interest components of 2017 net post-retirement benefit cost would each have declined by $24,000.
Expected Contributions
The Company expects to contribute $1.3 million to the Health & Welfare Plan to pay premiums and claims in
the fiscal year ending December 31, 2018.
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)
2018
2019
2020
2021
2022
2023 and thereafter
Total
$ 1,328
1,288
1,252
1,213
1,167
5,171
$11,419
NOTE 13: STOCK-RELATED BENEFIT PLANS
New York Community Bank Employee Stock Ownership Plan
All full-time employees who have attained 21 years of age and have completed twelve consecutive months of
credited service are eligible to participate in the Employee Stock Ownership Plan (“ESOP”), with benefits vesting on
a six-year basis, starting with 20% in the second 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.
In 2017, 2016, and 2015, the Company allocated 695,675, 617,031, and 552,829 shares, respectively, to
participants in the ESOP. For the years ended December 31, 2017, 2016, and 2015, the Company recorded ESOP-
related compensation expense of $9.2 million, $9.8 million, and $9.2 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 1,819,985 and 1,729,319 shares, respectively, at December 31, 2017 and 2016, including shares
purchased through dividend reinvestment. The cost of these shares is reflected as a reduction of paid-in capital in
excess of par in the Consolidated Statements of Condition.
Stock Incentive and Stock Option Plans
At December 31, 2017, the Company had a total of 7,135,071 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 (
“2012 Stock Incentive Plan”), which was approved by the Company’s shareholders at its Annual Meeting on June 7,
2012. The Company granted 2,956,249 shares of restricted stock, with an average fair value of $15.16 per share on
the date of grant, during the twelve months ended December 31, 2017. During 2016 and 2015, the Company granted
2,805,652 shares and 2,352,641 shares, respectively, of restricted stock, which had average fair values of $15.21 and
$15.83 per share on the respective grant dates. The shares of restricted stock that were granted during the years ended
December 31, 2017, 2016, and 2015 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 $36.0 million,
$32.7 million, and $30.2 million, respectively, for the years ended December 31, 2017, 2016, and 2015.
126
The following table provides a summary of activity with regard to restricted stock awards in the year ended
December 31, 2017:
For the Year Ended December 31, 2017
Unvested at beginning of year
Granted
Vested
Cancelled
Unvested at end of year
Number of Shares
6,930,306
2,956,249
(3,867,828 )
(444,560 )
5,574,167
Weighted Average
Grant Date
Fair Value
$15.37
15.16
15.19
15.55
15.38
As of December 31, 2017, unrecognized compensation cost relating to unvested restricted stock totaled
$78.7 million. This amount will be recognized over a remaining weighted average period of 3.1 years.
NOTE 14: FAIR VALUE MEASUREMENTS
GAAP sets forth a definition of fair value, establishes a consistent framework for measuring fair value, and
requires disclosure for each major asset and liability category measured at fair value on either a recurring or non-
recurring basis. GAAP also clarifies that fair value is an “exit” price, representing the amount that would be received
when selling an asset, or paid when transferring a liability, in an orderly transaction between market participants. Fair
value is thus a market-based measurement that should be determined based on assumptions that market participants
would use in pricing an asset or liability. As a basis for considering such assumptions, GAAP establishes a three-tier
fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:
• Level 1 – Inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or
liabilities in active markets.
• Level 2 – Inputs to the valuation methodology include quoted prices for similar assets and liabilities in
active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for
substantially the full term of the financial instrument.
• Level 3 – Inputs to the valuation methodology are significant unobservable inputs that reflect a company’s
own assumptions about the assumptions that market participants use in pricing an asset or liability.
A financial instrument’s categorization within this valuation hierarchy is based upon the lowest level of input
that is significant to the fair value measurement.
127
The following tables present assets and liabilities that were measured at fair value on a recurring basis as of
December 31, 2017 and 2016, and that were included in the Company’s Consolidated Statements of Condition at those
dates:
Fair Value Measurements at December 31, 2017
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Netting
Adjustments(1)
Total
Fair Value
$
$
--
--
$ 199,898
--
--
--
--
15,434
--
$ 215,332
$ 215,332
$2,068,842
549,904
$2,618,746
$
--
473,258
90,775
70,120
46,096
--
17,100
$ 697,349
$3,316,095
$
$
$
$
$
--
--
--
--
--
--
--
--
--
--
--
$
--
--
$
35,258
--
--
$
2,729
$ --
$ --
$ --
--
--
--
--
--
--
$ --
$ --
$ --
--
$2,068,842
549,904
$2,618,746
$ 199,898
473,258
90,775
70,120
46,096
15,434
17,100
$ 912,681
$3,531,427
$
35,258
2,729
(in thousands)
Assets:
Mortgage-Related Securities
Available for Sale:
GSE certificates
GES CMOs
Total mortgage-related securities
Other Securities Available for Sale:
U. S. Treasury Obligations
GSE debentures
Corporate bonds
Municipal bonds
Capital trust notes
Preferred stock
Mutual funds and common stock
Total other securities
Total securities available for sale
Other Assets:
Loans held for sale
Mortgage servicing rights
128
The Company had no liabilities that were measured at fair value on a recurring basis at December 31, 2017.
Fair Value Measurements at December 31, 2016
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Netting
Adjustments(1)
Total
Fair Value
$
$
--
--
$
--
--
42,724
--
$ 42,724
$ 42,724
$
--
--
--
2,611
$
$
7,326
7,326
$
631
7,243
29,260
17,097
$ 54,231
$ 61,557
$409,152
--
--
16,829
$
$
$
$
$
$
$
$
$
$
$
--
--
--
--
--
--
--
--
$
--
228,099
982
--
--
--
--
--
--
--
--
--
$
$
7,326
7,326
$
631
7,243
71,984
17,097
$ 96,955
$104,281
--
--
--
(17,861)
$409,152
228,099
982
1,579
$ (6,009)
$ (17,719 )
$
--
$ 16,588
$ (7,140 )
(in thousands)
Assets:
Mortgage-Related Securities
Available for Sale:
GSE certificates
Total mortgage-related securities
Other Securities Available for Sale:
Municipal bonds
Capital trust notes
Preferred stock
Mutual funds and 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 (2)
Liabilities:
Derivative liabilities
(1) Includes cash collateral received from, and paid to, counterparties.
(2) Includes $1.9 million to purchase Treasury options.
The Company reviews and updates the fair value hierarchy classifications for its assets on a quarterly basis.
Changes from one quarter to the next that are related to the observability of inputs for a fair value measurement may
result in a reclassification from one hierarchy level to another.
A description of the methods and significant assumptions utilized in estimating the fair values of available-for-
sale securities follows:
Where quoted prices are available in an active market, securities are classified within Level 1 of the valuation
hierarchy. Level 1 securities include highly liquid government securities, exchange-traded securities, and derivatives.
If quoted market prices are not available for a 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.
Periodically, the Company uses fair values supplied by independent pricing services to corroborate the fair
values derived from the pricing models. In addition, the Company reviews the fair values supplied by independent
pricing services, as well as their underlying pricing methodologies, for reasonableness. The Company challenges
pricing service valuations that appear to be unusual or unexpected.
The Company carries loans held for sale at fair value. The fair value of loans held for sale is primarily based on
quoted market prices for securities backed by similar types of loans. Changes in the fair value of these assets are
largely driven by changes in interest rates subsequent to loan funding, and changes in the fair value of servicing
associated with the mortgage loans held for sale. Loans held for sale are classified within Level 2 of the valuation
hierarchy.
129
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 a third-party valuation
specialist. The specialist 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
periodically adjusts the underlying inputs and assumptions to reflect market conditions and assumptions that a market
participant would consider in valuing the MSR asset. MSR fair value measurements use significant unobservable
inputs and, accordingly, are classified within Level 3.
Exchange-traded derivatives that are valued using quoted prices are classified within Level 1 of the valuation
hierarchy. The majority of the Company’s derivative positions are valued using internally developed models that use
readily observable market parameters as their basis. These are parameters that are actively quoted and can be validated
by external sources, including industry pricing services. Where the types of derivative products have been in existence
for some time, the Company uses models that are widely accepted in the financial services industry. These models
reflect the contractual terms of the derivatives, including the period to maturity, and market-based parameters such as
interest rates, volatility, and the credit quality of the counterparty. Furthermore, many of these models do not contain
a high level of subjectivity, as the methodologies used in the models do not require significant judgment, and inputs
to the models are readily observable from actively quoted markets, as is the case for “plain vanilla” interest rate swaps
and option contracts. Such instruments are generally classified within Level 2 of the valuation hierarchy. Derivatives
that are valued based on models with significant unobservable market parameters, and that are normally traded less
actively, have trade activity that is one-way, and/or are traded in less-developed markets, are classified within Level 3
of the valuation hierarchy.
The fair values of interest rate lock commitments (“IRLCs”) for residential mortgage loans that the Company
intends to sell are based on internally developed models. The key model inputs primarily include the sum of the value
of the forward commitment based on the loans’ expected settlement dates and the projected values of the MSRs, loan
level price adjustment factors, and historical IRLC closing ratios. The closing ratio is computed by the Company’s
mortgage banking operation and is periodically reviewed by management for reasonableness. Such derivatives are
classified as Level 3.
While the Company believes its valuation methods are appropriate, and consistent with those of other market
participants, the use of different methodologies or assumptions to determine the fair values of certain financial
instruments could result in different estimates of fair values at a reporting date.
Fair Value Option
Loans Held for Sale
The Company has elected the fair value option for its loans held for sale. These loans held for sale consist of
one-to-four family mortgage loans, none of which was 90 days or more past due at December 31, 2017. Prior to the
sale of the mortgage banking business, management believed that the mortgage banking business operated on a short-
term cycle. Therefore, in order to reflect the most relevant valuations for the key components of this business, and to
reduce timing differences in amounts recognized in earnings, the Company has elected to record loans held for sale at
fair value to match the recognition of IRLCs, MSRs, and derivatives, all of which are recorded at fair value in earnings.
Fair value was based on independent quoted market prices of mortgage-backed securities comprised of loans with
similar features to those of the Company’s loans held for sale, where available, and adjusted as necessary for such
items as servicing value, guaranty fee premiums, and credit spread adjustments.
The following table reflects the difference between the fair value carrying amount of loans held for sale, for
which the Company has elected the fair value option, and the unpaid principal balance:
December 31, 2017
December 31, 2016
Fair Value
Carrying
Amount
$35,258
Aggregate
Unpaid
Principal
$34,563
Fair Value
Carrying Amount
Less Aggregate
Unpaid Principal
$695
Fair Value
Carrying
Amount
$409,152
Aggregate
Unpaid
Principal
$408,928
Fair Value
Carrying Amount
Less Aggregate
Unpaid Principal
$224
(in thousands)
Loans held for sale
130
Gains and Losses Included in Income for Assets Where the Fair Value Option Has Been Elected
The assets accounted for under the fair value option are initially measured at fair value. Gains and losses from
the initial measurement and subsequent changes in fair value are recognized in earnings. The following table presents
the changes in fair value related to initial measurement, and the subsequent changes in fair value included in earnings,
for loans held for sale and MSRs for the periods indicated:
(Loss) Gain Included in
Mortgage Banking Income
from Changes in Fair Value (1)
For the Twelve Months Ended December 31,
2016
2017
$ (5,616)
899
$
(27,453)
(20,076 )
$ (33,069)
$ (19,177 )
(472 )
$
(5,610 )
$ (6,082 )
2015
(in thousands)
Loans held for sale
Mortgage servicing rights
Total (loss) gain
(1) Does not include the effect of hedging activities, which is included in “Other non-interest income.”
The Company has determined that there is no instrument-specific credit risk related to its loans held for sale,
due to the short duration of such assets.
131
Changes in Level 3 Fair Value Measurements
The following tables present, for the twelve months ended December 31, 2017 and 2016, a roll-forward of the balance sheet amounts (including changes in
fair value) for financial instruments classified in Level 3 of the valuation hierarchy:
Total Realized/Unrealized
Gains/(Losses) Recorded in
(in thousands)
Mortgage servicing rights
Interest rate lock commitments
(in thousands)
Mortgage servicing rights
Interest rate lock commitments
Fair Value
January 1,
2017
$228,099
982
Fair Value
January 1,
2016
$243,389
2,526
Income/
(Loss)
$(20,076 )
(982 )
Comprehensive
(Loss) Income
$--
--
Issuances Settlements
$18,054 $(223,348 )
--
--
Transfers
to/(from)
Level 3
$--
--
Fair Value
at Dec. 31,
2017
$2,729
--
Total Realized/Unrealized
Gains/(Losses) Recorded in
Income/
(Loss)
$(27,453 )
(1,544 )
Comprehensive
(Loss) Income
$--
--
Issuances Settlements
$45,588
$(33,425 )
--
--
Transfers
to/(from)
Level 3
$--
--
Fair Value
at Dec. 31,
2016
$228,099
982
Change in
Unrealized
Gains/(Losses)
Related to
Instruments Held at
December 31, 2017
$(222 )
--
Change in
Unrealized
Gains/(Losses)
Related to
Instruments Held at
December 31, 2016
$(27,453 )
982
The Company’s policy is to recognize transfers in and out of Levels 1, 2, and 3 as of the end of the reporting period. There were no transfers in or out of
Levels 1, 2, or 3 during the twelve months ended December 31, 2017 or 2016.
132
For Level 3 assets and liabilities measured at fair value on a recurring basis as of December 31, 2017, the
significant unobservable inputs used in the fair value measurements were as follows:
(dollars in thousands)
Mortgage servicing rights
Fair Value at
Dec. 31, 2017 Valuation Technique
Significant Unobservable Inputs
$2,729
Discounted Cash Flow Weighted Average Constant
Significant
Unobservable
Input Value
Prepayment Rate (1)
9.81 %
Weighted Average Discount Rate
12.00
(1) Represents annualized loan repayment rate assumptions.
The significant unobservable inputs used in the fair value measurement of the Company’s MSRs are the
weighted average constant prepayment rate and the weighted average discount rate. Significant increases or decreases
in either of those inputs in isolation could result in significantly lower or higher fair value measurements. Although
the constant prepayment rate and the discount rate are not directly interrelated, they generally move in opposite
directions.
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, 2017 and 2016, and
that were included in the Company’s Consolidated Statements of Condition at those dates:
Fair Value Measurements at December 31, 2017 Using
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
$--
--
$--
Significant Other
Observable Inputs
(Level 2)
$--
--
$--
Significant
Unobservable Inputs
(Level 3)
$45,837
4,357
$50,194
Total Fair
Value
$45,837
4,357
$50,194
(in thousands)
Certain impaired loans (1)
Other assets (2)
Total
(1) Represents the fair value of impaired loans, based on the value of the collateral.
(2) Represents the fair value of OREO, based on the appraised value of the collateral subsequent to its initial classification as OREO.
Fair Value Measurements at December 31, 2016 Using
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
$--
--
$--
Significant Other
Observable Inputs
(Level 2)
$--
--
$--
Significant
Unobservable Inputs
(Level 3)
$15,635
5,684
$21,319
Total Fair
Value
$15,635
5,684
$21,319
(in thousands)
Certain impaired loans (1)
Other assets (2)
Total
(1) Represents the fair value of impaired loans, based on the value of the collateral.
(2) 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
GAAP 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.
133
The following tables summarize the carrying values, estimated fair values, and fair value measurement levels
of financial instruments that were not carried at fair value on the Company’s Consolidated Statements of Condition at
December 31, 2017 and 2016:
December 31, 2017
(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
FHLB stock (1)
Loans, net
$ 2,528,169
603,819
38,265,183
$2,528,169
603,819
38,254,538
$ 2,528,169
--
--
$
--
603,819
--
$
--
--
38,254,538
Financial Liabilities:
Deposits
Borrowed funds
$29,102,163 $29,044,852
12,780,653
12,913,679
$ 20,458,517 (2)
--
$ 8,586,335 (3) $ --
--
12,780,653
(1) Carrying value and estimated fair value are at cost.
(2) Interest-bearing checking and money market accounts, savings accounts, and non-interest-bearing accounts.
(3) Certificates of deposit.
December 31, 2016
(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
$ 557,850 $ 557,850
3,813,959
590,934
39,416,469
3,712,776
590,934
39,308,016
$
557,850
200,220
--
--
$
--
3,613,739
590,934
--
$
--
--
--
39,416,469
Financial Liabilities:
Deposits
Borrowed funds
$28,887,903 $28,888,064
13,633,943
13,673,379
$ 21,310,733 (2)
--
$ 7,577,331 (3) $
13,633,943
--
--
(1) Carrying value and estimated fair value are at cost.
(2) Interest-bearing checking and money market accounts, savings accounts, and non-interest-bearing accounts.
(3) Certificates of deposit.
The methods and significant assumptions used to estimate fair values for the Company’s financial instruments
follow:
Cash and Cash Equivalents
Cash and cash equivalents include cash and due from banks and federal 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 maturities and cash flow assumptions.
134
Federal Home Loan Bank Stock
Ownership in equity securities of the FHLB is restricted and there is no established market for their resale. The
carrying amount approximates the fair value.
Loans
The loan portfolio is segregated into various components for valuation purposes in order to group loans based
on their significant financial characteristics, such as loan type (mortgage or other) and payment status (performing or
non-performing). The estimated fair values of mortgage and other loans are computed by discounting the anticipated
cash flows from the respective portfolios. The discount rates reflect current market rates for loans with similar terms
to borrowers of similar credit quality. The estimated fair values of non-performing mortgage and other loans are based
on recent collateral appraisals.
The methods used to estimate the fair values of loans are extremely sensitive to the assumptions and estimates
used. While management has attempted to use assumptions and estimates that best reflect the Company’s loan
portfolio and current market conditions, a greater degree of subjectivity is inherent in these values than in those
determined in active markets. Accordingly, readers are cautioned in using this information for purposes of evaluating
the financial condition and/or value of the Company in and of itself, or in comparison with that of any other company.
Mortgage Servicing Rights
MSRs do not trade in an active market with readily observable prices. Accordingly, the Company bases the fair
value of its MSRs on a valuation performed by a third-party valuation specialist. This specialist determines fair value
based on the present value of estimated future net servicing income cash flows, and incorporates 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 specialist and the Company evaluate, and periodically adjust, as necessary, these underlying inputs and
assumptions to reflect market conditions and changes in the assumptions that a market participant would consider in
valuing MSRs.
Derivative Financial Instruments
For exchange-traded futures and exchange-traded options, fair value is based on observable quoted market
prices in an active market. For forward commitments to buy and sell loans and mortgage-backed securities, fair value
is based on observable market prices for similar loans and securities in an active market. The fair value of IRLCs for
one-to-four family mortgage loans that the Company intends to sell is based on internally developed models. The key
model inputs primarily include the sum of the value of the forward commitment based on the loans’ expected
settlement dates, the value of MSRs arrived at by an independent MSR broker, government agency price adjustment
factors, and historical IRLC fall-out factors.
Deposits
The fair values of deposit liabilities with no stated maturity (i.e., interest-bearing checking 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, 2017 and 2016.
135
NOTE 15: DERIVATIVE FINANCIAL INSTRUMENTS
The Company had no derivative financial instruments as of December 31, 2017, due to the sale of the mortgage
banking business.
During 2016 and until December 2017, the Company’s derivative financial instruments consisted of financial
forward and futures contracts, interest rate swaps, IRLCs, and options. These derivatives related to mortgage banking
operations, residential MSRs, and other risk management activities, and sought to mitigate or reduce the Company’s
exposure to losses from adverse changes in interest rates. These activities varied in scope based on the level and
volatility of interest rates, other changing market conditions, and the types of assets held.
In accordance with the applicable accounting guidance, the Company took into account the impact of collateral
and master netting agreements that allowed it to settle all derivative contracts held with a single counterparty on a net
basis, and to offset the net derivative position with the related collateral when recognizing derivative assets and
liabilities. As a result, the Company’s Statements of Financial Condition could reflect derivative contracts with
negative fair values that were included in derivative assets, and contracts with positive fair values that were included
in derivative liabilities.
Changes in the fair value of these derivatives were reflected in current-period earnings. None of these derivatives
were designated as hedges for accounting purposes.
The Company used various financial instruments, including derivatives, in connection with its prior strategies
to reduce pricing risk resulting from changes in interest rates. Derivative instruments included IRLCs entered into
with borrowers or correspondents/brokers to acquire agency conforming fixed and adjustable rate residential mortgage
loans that were held for sale, as well as Treasury options and Eurodollar futures.
The Company entered 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 were entered into with
securities dealers in an amount related to the portion of IRLCs that was expected to close. The value of these forward
sales contracts moved 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
entered into forward contracts on mortgage-backed securities or forward commitments to sell loans to approved
investors. Short positions in Eurodollar futures contracts were used to manage price risk on adjustable rate mortgage
loans held for sale.
The Company used interest rate swaps to hedge the fair value of its residential MSRs. The Company also
purchased put and call options to manage the risk associated with variations in the amount of IRLCs that ultimately
closed.
In addition, the Company mitigated a portion of the risk associated with changes in the value of MSRs. The
general strategy for mitigating this risk was to purchase derivative instruments, the value of which changed in the
opposite direction of interest rates, thus partially offsetting changes in the value of our servicing assets, which tended
to move in the same direction as interest rates. Accordingly, the Company purchased Eurodollar futures and call
options on Treasury securities, and entered into forward contracts to purchase mortgage-backed securities.
The following table sets forth the effect of derivative instruments on the Consolidated Statements of Operations
and Comprehensive Income for the periods indicated:
(in thousands)
Treasury options
Treasury and Eurodollar futures
Interest rate swaps
Forward commitments to buy/sell
loans/mortgage-backed securities
Total (loss) gain
(Loss) Gain Included in Mortgage Banking Income
For the Twelve Months Ended December 31,
2015
2016
2017
$
(262 )
55
3,068
$ (2,795 )
165
(4,561 )
$ (8,222 )
501
--
(8,815 )
$ (5,954 )
(4,963 )
$(12,154 )
5,752
$ (1,969 )
136
The Company had in place an enforceable master netting arrangement with every counterparty. All master
netting arrangements included rights to offset associated with the Company’s recognized derivative assets, derivative
liabilities, and cash collateral received and pledged. Accordingly, the Company, where appropriate, offset all
derivative asset and liability positions with the cash collateral received and pledged.
The following table presents the effect of the master netting arrangements on the presentation of the derivative
assets in the Consolidated Statements of Condition as of December 31, 2016:
December 31, 2016
Gross Amount
of Recognized
Assets (1)
$20,422
Gross Amount
Offset in the
Statement of
Condition
$17,861
Net Amount of
Assets Presented
in the Statement
of Condition
$2,561
(in thousands)
Derivatives
(1) Included $1.9 million to purchase Treasury options.
Gross Amounts Not
Offset in the
Consolidated Statement
of Condition
Financial
Instruments
$--
Cash
Collateral
Received
$--
Net
Amount
$2,561
The following table presents the effect the master netting arrangements had on the presentation of the derivative
liabilities in the Consolidated Statements of Condition as of December 31, 2016:
December 31, 2016
Gross Amount
of Recognized
Liabilities
$23,728
Gross Amount
Offset in the
Statement of
Condition
$16,588
Net Amount of
Liabilities
Presented in the
Statement of
Condition
$7,140
(in thousands)
Derivatives
NOTE 16: DIVIDEND RESTRICTIONS
Gross Amounts Not
Offset in the
Consolidated Statement
of Condition
Financial
Instruments
$--
Cash
Collateral
Pledged
$--
Net
Amount
$7,140
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 the Company’s 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.
The Company is required to receive a non-objection from the FRB to pay cash dividends on its outstanding
common and preferred stock. The Company received non-objections from the FRB for each of the four quarterly cash
dividends and the three preferred stock dividends it paid during the year. The FRB has advised the Company to
continue the exchange of written documentation to obtain their non-objection to the declaration of dividends.
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 NYSDFS 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 2017, dividends
of $336.0 million were paid by the Banks to the Parent Company; at December 31, 2017, the Banks could have paid
additional dividends of $379.5 million to the Parent Company without regulatory approval.
137
NOTE 17: 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:
Junior subordinated debentures
Other liabilities
Total liabilities
Stockholders’ equity
Total liabilities and stockholders’ equity
Condensed Statements of Income (Loss)
December 31,
2017
2016
$ 90,536
--
7,050,139
4,750
23,980
$7,169,405
$ 359,179
14,850
374,029
6,795,376
$7,169,405
$ 63,727
2,002
6,426,276
7,839
34,102
$6,533,946
$ 358,879
51,076
409,955
6,123,991
$6,533,946
Years Ended December 31,
2016
$ 527
330,000
679
331,206
49,157
2017
$ 943
336,000
1,700
338,643
54,333
2015
$ 1,027
345,000
527
346,554
48,255
284,310
19,575
282,049
19,592
298,299
20,720
303,885
162,316
$466,201
301,641
193,760
$495,401
319,019
(366,175)
$ (47,156)
(in thousands)
Interest income
Dividends received from subsidiaries
Other income
Gross income
Operating expenses
Income before income tax benefit and equity in underdistributed
(overdistributed) earnings of subsidiaries
Income tax benefit
Income before equity in underdistributed (overdistributed) earnings
of subsidiaries
Equity in underdistributed (overdistributed) earnings of subsidiaries
Net income (loss)
138
Condensed Statements of Cash Flows
(in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)
Change in other assets
Change in other liabilities
Other, net
Equity in (underdistributed) 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
Investment in subsidiaries
Net cash used in investing activities
CASH FLOWS FROM FINANCING ACTIVITIES:
Treasury stock purchases
Cash dividends paid on common and preferred stock
Proceeds from issuance of preferred stock
Proceeds from follow-on common stock offering, 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
NOTE 18: CAPITAL
Years Ended December 31,
2016
2017
2015
$ 466,201
10,122
(36,226)
36,330
(162,316)
$ 314,110
$ 495,401
316
(2,252)
33,333
(193,760)
$ 333,038
$ (47,156 )
(2,253 )
22,236
32,955
366,175
$ 371,957
$ 2,000
3,089
(420,000)
(414,911)
$ --
(204)
--
$ (204)
$ --
224
(560,000 )
$(559,776 )
$ (18,463)
(356,768)
502,840
--
$ 127,609
26,809
63,727
$ 90,536
$ (8,677)
(330,810)
--
--
$(339,487)
(6,653)
70,380
$ 63,727
$ (7,020 )
(453,981 )
--
629,682
$ 168,681
(19,138 )
89,518
$ 70,380
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 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 for the Banks.
The following tables present the regulatory capital ratios for the Company at December 31, 2017 and 2016, in
comparison with the minimum amounts and ratios required by the FRB for capital adequacy purposes:
Risk-Based Capital
At December 31, 2017
(dollars in thousands)
Total capital
Minimum for capital adequacy
purposes
Excess
At December 31, 2016
(dollars in thousands)
Total capital
Minimum for capital adequacy
purposes
Excess
Common Equity
Tier 1
Leverage Capital
Ratio
Amount
$3,869,129 11.36 % $4,371,969 12.84% $4,877,208 14.32% $4,371,969 9.58 %
Amount Ratio Amount
Amount
Ratio
Ratio
Tier 1
Total
1,532,448
$2,336,681
2,043,265 6.00 2,724,353 8.00 1,826,141 4.00
4.50
6.86 % $2,328,704 6.84% $2,152,855 6.32% $2,545,828 5.58 %
Risk-Based Capital
Common Equity
Tier 1
Leverage Capital
Ratio
Amount
$3,748,231 10.62 % $3,748,231 10.62% $4,277,759 12.12% $3,748,231 8.00 %
Amount Ratio Amount
Amount
Ratio
Ratio
Tier 1
Total
1,588,699
$2,159,532
2,118,266 6.00 2,824,355 8.00 1,875,062 4.00
4.50
6.12 % $1,629,965 4.62% $1,453,404 4.12% $1,873,169 4.00 %
In accordance with Basel III, the inclusion of trust preferred securities as tier 1 capital was phased out completely
in 2016.
In addition, Basel III calls for the phase-in of a capital conservation buffer over a five-year period beginning
with 0.625% in 2016 and reaching 2.50% in 2019, when fully phased in. At December 31, 2017, our total risk-based
139
capital ratio exceeded the minimum requirement for capital adequacy purposes by 632 basis points and the fully
phased-in capital conservation buffer by 382 basis points.
The Banks are subject to regulation, examination, and supervision by the NYSDFS 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 common equity tier 1 capital, tier 1 capital, and total capital to
risk-weighted assets (as such measures are defined in the regulations). At December 31, 2017, the Banks exceeded all
the capital adequacy requirements to which they were subject.
As of December 31, 2017, the Company, the Community Bank, and the Commercial Bank are categorized as
“well capitalized” under the regulatory framework for prompt corrective action. To be categorized as well capitalized,
a bank must maintain a minimum common equity tier 1 risk-based capital ratio of 6.50%; a minimum tier 1 risk-based
capital ratio of 8.00%; a minimum total risk-based capital ratio of 10.00%; and a minimum leverage capital ratio of
5.00%. In the opinion of management, no conditions or events have transpired since December 31, 2017 to change
these capital adequacy classifications.
The following tables present the actual capital amounts and ratios for the Community Bank at December 31,
2017 and 2016 in comparison to the minimum amounts and ratios required for capital adequacy purposes.
Risk-Based Capital
At December 31, 2017
(dollars in thousands)
Total capital
Minimum for capital adequacy
purposes
Excess
At December 31, 2016
(dollars in thousands)
Total capital
Minimum for capital adequacy
purposes
Excess
Common Equity
Tier 1
Leverage Capital
Ratio
Amount
$4,253,233 13.43 % $4,253,233 13.43% $4,387,620 13.86% $4,253,233 10.06 %
Amount Ratio Amount
Amount
Ratio
Ratio
Tier 1
Total
1,424,795
$2,828,438
4.50
1,899,727 6.00 2,532,969 8.00 1,691,041 4.00
8.93 % $2,353,506 7.43% $1,854,651 5.86% $2,562,192 6.06 %
Risk-Based Capital
Common Equity
Tier 1
Leverage Capital
Ratio
Amount
$3,686,510 11.23 % $3,686,510 11.23% $3,843,382 11.71% $3,686,510 8.45 %
Amount Ratio Amount
Amount
Ratio
Ratio
Tier 1
Total
1,477,056
$2,209,454
4.50
1,969,408 6.00 2,625,877 8.00 1,744,601 4.00
6.73 % $1,717,102 5.23% $1,217,505 3.71% $1,941,909 4.45 %
The following tables present the actual capital amounts and ratios for the Commercial Bank at December 31,
2017 and 2016 in comparison to the minimum amounts and ratios required for capital adequacy purposes:
At December 31, 2017
(dollars in thousands)
Total capital
Minimum for capital adequacy
purposes
Excess
Risk-Based Capital
Common Equity
Tier 1
Tier 1
Amount Ratio Amount
$380,194 15.95 %
Ratio
$380,194 15.95%
Amount
Total
Leverage Capital
Amount Ratio
$404,643 16.97% $380,194 11.37 %
Ratio
107,285 4.50
$272,909 11.45 %
143,047 6.00
$237,147 9.95%
190,729 8.00 133,801 4.00
$213,914 8.97% $246,393 7.37 %
140
At December 31, 2016
(dollars in thousands)
Total capital
Minimum for capital adequacy
purposes
Excess
Risk-Based Capital
Common Equity
Tier 1
Tier 1
Amount Ratio Amount
$370,707 14.14 %
Ratio
$370,707 14.14%
Amount
Total
Leverage Capital
Amount Ratio
$397,259 15.15% $370,707 10.53 %
Ratio
117,973 4.50
$252,734 9.64 %
157,297 6.00
$213,410 8.14%
209,729 8.00 140,813 4.00
$187,530 7.15% $229,894 6.53 %
On March 17, 2017, the Company issued 20,600,000 depositary shares, each representing a 1/40th interest in a
share of the Company’s Fixed-to-Floating Rate Series A Noncumulative Perpetual Preferred Stock, par value $0.01
per share, with a liquidation preference of $1,000 per share (equivalent to $25 per depositary share). Dividends will
accrue on the depositary shares at a fixed rate equal to 6.375% per annum until March 17, 2027, and a floating rate
equal to Three-month LIBOR plus 382.1 basis points per annum beginning on March 17, 2027. Dividends will be
payable in arrears on March 17, June 17, September 17, and December 17 of each year, which commenced on June 17,
2017.
NOTE 19: SEGMENT REPORTING
Reflecting the sale of the Company’s mortgage banking business, the Residential Mortgage Banking segment
will no longer be reportable. The information presented below represents activity in the Residential Mortgage Banking
segment through September 30, 2017.
The Company’s operations were 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 required unique technology and marketing strategies, and offer different products and
services. While the Company is managed as an integrated organization, individual executive managers were 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 used various estimates and allocated methodologies to measure the
performance of the operating segments. To determine financial performance for each segment, the Company allocated
capital, funding charges and credits, certain non-interest expenses, and income tax provisions to each segment, as
applicable. Allocation methodologies were subject to periodic adjustment as the internal management accounting
system was revised and/or as business or product lines within the segments change. In addition, because the
development and application of these methodologies was a dynamic process, the financial results presented may be
periodically revised.
The Company allocated expenses to the reportable segments based on various factors, including the volume and
number of loans produced and the number of full-time equivalent employees. Income taxes were allocated to the
various segments based on taxable income and statutory rates applicable to the segment.
Banking Operations Segment
The Banking Operations segment serves consumers and businesses by offering and servicing a variety of loan
and deposit products and other financial services.
Residential Mortgage Banking Segment
The Residential Mortgage Banking segment originated, aggregated, sold, and serviced one-to-four family
mortgage loans. Mortgage loan products consisted primarily of agency-conforming, fixed and adjustable rate loans
and, to a lesser extent, jumbo loans, for the purpose of purchasing or refinancing one-to-four family homes. The
Residential Mortgage Banking segment earned interest on loans held in the warehouse and non-interest income from
the origination and servicing of loans. It also recognized gains or losses on the sale of such loans.
141
The following tables provide a summary of the Company’s segment results for the years ended December 31,
2017, 2016, and 2015 on an internally managed accounting basis:
(in thousands)
Net interest income
Provision for loan losses
Non-Interest Income:
Third party(1)
Gain on sale of mortgage banking
operation
Inter-segment
Total non-interest income
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)
Net interest income
Provision for loan losses
Non-Interest Income:
Third party(1)
Inter-segment
Total non-interest income
Non-interest expense(2)
Income (loss) before income tax expense
(benefit)
Income tax expense (benefit)
Net income (loss)
Identifiable segment assets (period-end)
(1) Includes ancillary fee income.
(2) Includes both direct and indirect expenses.
(in thousands)
Net interest income
Recoveries of loan losses
Non-Interest Income:
Third party(1)
Inter-segment
Total non-interest income
Non-interest expense(2)
(Loss) income before income tax expense
Income tax (benefit) expense
Net (loss) income
Identifiable segment assets (period-end)
(1) Includes ancillary fee income.
(2) Includes both direct and indirect expenses.
For the Twelve Months Ended December 31, 2017
Residential
Mortgage Banking
$ 8,543
--
Banking
Operations
$ 1,121,460
37,242
Total
Company
$ 1,130,003
37,242
188,564
20,957
209,521
--
(10,222 )
178,342
594,394
668,166
201,994
$
466,172
$ 49,124,195
7,359
10,222
38,538
47,032
49
20
29
--
$
$
7,359
--
216,880
641,426
668,215
202,014
$
466,201
$ 49,124,195
For the Twelve Months Ended December 31, 2016
Residential
Mortgage Banking
$ 14,959
--
Banking
Operations
$ 1,272,423
4,180
Total
Company
$ 1,287,382
4,180
116,200
(17,645 )
98,555
584,894
781,904
283,656
$
498,248
$ 48,195,581
29,372
17,645
47,017
66,752
(4,776 )
(1,929 )
$ (2,847 )
$ 730,974
145,572
--
145,572
651,646
777,128
281,727
$
495,401
$ 48,926,555
For the Twelve Months Ended December 31, 2015
Residential
Mortgage Banking
$ 15,001
--
Banking
Operations
393,074
(15,004 )
Total
Company
408,075
(15,004 )
$
$
154,847
(15,359 )
139,488
700,469
(152,903 )
(93,297 )
$
(59,606 )
$ 49,619,931
55,916
15,359
71,275
65,386
20,890
8,440
$ 12,450
$ 697,865
210,763
--
210,763
765,855
(132,013 )
(84,857 )
$
(47,156 )
$ 50,317,796
142
Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors
New York Community Bancorp, Inc.:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated statements of condition of New York Community Bancorp, Inc. and
subsidiaries (the Company) as of December 31, 2017 and 2016, the related consolidated statements of operations and
comprehensive income (loss), changes in stockholders’ equity, and cash flows for each of the years in the three-year
period ended December 31, 2017, and the related notes (collectively, the consolidated financial statements). In our
opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the
Company as of December 31, 2017 and 2016, and the results of its operations and its cash flows for each of the years
in the three-year period ended December 31, 2017, 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) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2017, based on criteria
established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations
of the Treadway Commission, and our report dated March 1, 2018 expressed an unqualified opinion on the
effectiveness of the Company’s internal control over financial reporting.
Basis for Opinion
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 are a public accounting firm
registered with the PCAOB and are required to be independent with respect to the Company in accordance with the
U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and
the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of
material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of
material misstatement of the consolidated financial statements, whether due to error or fraud, and performing
procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the
amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting
principles used and significant estimates made by management, as well as evaluating the overall presentation of the
consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
We have served as the Company’s auditor since 1993.
New York, New York
March 1, 2018
143
Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors
New York Community Bancorp, Inc.
Opinion on Internal Control over Financial Reporting
We have audited New York Community Bancorp, Inc. and subsidiaries’ (the Company) internal control over financial
reporting as of December 31, 2017, based on criteria established in Internal Control – Integrated Framework
(2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the
Company maintained, in all material respects, effective internal control over financial reporting as of December 31,
2017, based on criteria established in Internal Control – Integrated Framework (2013) 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) (PCAOB), the consolidated statements of condition of the Company as of December 31, 2017 and 2016, the
related consolidated statements of operations and comprehensive income (loss), changes in stockholders’ equity, and
cash flows for each of the years in the three-year period ended December 31, 2017, and the related notes (collectively,
the consolidated financial statements), and our report dated March 1, 2018, expressed an unqualified opinion on those
consolidated financial statements.
Basis for Opinion
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 are a public accounting firm registered
with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal
securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. 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 of internal control over financial reporting 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.
Definition and Limitations of Internal Control over Financial Reporting
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.
New York, New York
March 1, 2018
144
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, 2017, management assessed the effectiveness of the Company’s internal control over
financial reporting based upon the framework established in Internal Control—Integrated Framework (2013) 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, 2017 was
effective using this criteria.
The effectiveness of the Company’s internal control over financial reporting as of December 31, 2017 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, 2017, 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, 2017.
(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.
145
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 5, 2018 (hereafter referred to as our “2018 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 on
the Investor Relations portion of our websites, www.myNYCB.com, www.NewYorkCommercialBank.com, and
www.NYCBfamily.com, and will be provided, without charge, upon written request to the Chief Corporate
Governance Officer and Corporate Secretary at 615 Merrick Avenue, Westbury, NY 11590.
ITEM 11. EXECUTIVE COMPENSATION
Information regarding executive compensation appears in our 2018 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,
2017:
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)
--
--
--
--
--
--
7,135,071
--
7,135,071
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 2018
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, and director independence, appears in our
2018 Proxy Statement under the captions “Transactions with Certain Related Persons” and “Corporate Governance,”
respectively, and is incorporated herein by this reference.
146
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Information regarding principal accountant fees and services appears in our 2018 Proxy Statement under the
caption “Audit and Non-Audit Fees,” and is incorporated herein by this reference.
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, 2017 and 2016;
• Consolidated Statements of Operations and Comprehensive Income (Loss) for each of the years in the three-
year period ended December 31, 2017;
• Consolidated Statements of Changes in Stockholders’ Equity for each of the years in the three-year period
ended December 31, 2017;
• Consolidated Statements of Cash Flows for each of the years in the three-year period ended December 31,
2017; and
• Notes to the Consolidated Financial Statements.
The following are incorporated by reference from Item 9A hereof:
• Management’s Report on Internal Control over Financial Reporting; and
• 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
3.2
3.3
3.4
3.5
4.1
4.2
4.3
4.4
Amended and Restated Certificate of Incorporation (1)
Certificates of Amendment of Amended and Restated Certificate of Incorporation (2)
Certificate of Amendment of Amended and Restated Certificate of Incorporation (3)
Certificate of Designations of the Registrant with respect to the Series A Preferred Stock, dated March
16, 2017, filed with the Secretary of State of the State of Delaware and effective March 16, 2017 (4)
Amended and Restated Bylaws(5)
Specimen Stock Certificate (6)
Deposit Agreement, dated as of March 16, 2017, by and among the Registrant, Computershare, Inc, and
Computershare Trust Company, N.A., as joint depositary, and the holders from time to time of the
depositary receipts described therein (7)
Form of certificate representing the Series A Preferred Stock (7)
Form of depositary receipt representing the Depositary Shares (7)
147
4.5
10.1
10.2
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* (8)
Synergy Financial Group, Inc. 2004 Stock Option Plan (as assumed by New York Community Bancorp,
Inc. effective October 1, 2007)* (9)
Incentive Savings Plan of Queens County Savings Bank* (11)
10.3(P) Form of Change in Control Agreements among the Company, the Bank, and Certain Officers* (10)
10.4(P) Form of Queens County Savings Bank Employee Severance Compensation Plan* (10)
10.5(P) Form of Queens County Savings Bank Outside Directors’ Consultation and Retirement Plan* (10)
10.6(P) Form of Queens County Bancorp, Inc. Employee Stock Ownership Plan and Trust* (10)
10.7(P)
10.8(P) Retirement Plan of Queens County Savings Bank* (10)
10.9(P) Supplemental Benefit Plan of Queens County Savings Bank* (12)
10.10(P) Excess Retirement Benefits Plan of Queens County Savings Bank* (10)
10.11(P) Queens County Savings Bank Directors’ Deferred Fee Stock Unit Plan* (10)
10.12
10.13
New York Community Bancorp, Inc. Management Incentive Compensation Plan* (13)
New York Community Bancorp, Inc. 2006 Stock Incentive Plan* (13)
New York Community Bancorp, Inc. 2012 Stock Incentive Plan* (14)
10.14
10.15
11.0
12.0
21.0
23.0
31.1
31.2
32.0
101
Underwriting Agreement, dated march 10, 2017, by and among the Registrant and Goldman Sachs & Co.,
Credit Suisse Securities (USA) LLC, and Merrill Lynch, Pierce, Fenner & Smith Incorporated, as
representatives of the several underwriters listed therein (15)
Statement Re: Computation of Per Share Earnings (See Note 2 to the Consolidated Financial Statements)
Statement Re: Ratio of Earnings to Fixed Charges (attached hereto)
Subsidiaries information incorporated herein by reference to Part I, “Subsidiaries”
Consent of KPMG LLP, dated March 1, 2018 (attached hereto)
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)
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, 2017, formatted in XBRL (Extensible Business Reporting Language): (i) the Consolidated Statements
of Condition, (ii) the Consolidated Statements of Operations and Comprehensive Income (Loss), (iii) the
Consolidated Statements of Changes in Stockholders’ Equity, (iv) the Consolidated Statements of Cash
Flows, and (v) the Notes to the Consolidated Financial Statements.
*
Management plan or compensation plan arrangement.
(1)
(2)
(3)
(4)
(5)
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 April 27, 2016 (File No. 1-31565)
Incorporated herein by reference to 3.4 of the Registrant’s Registration Statement on Form 8-A (File No. 333-
210919), as filed with the Securities and Exchange Commission on March 16, 2017
Incorporated by reference to Exhibits filed with the Company’s Form 10-K for the year ended December 31,
2016 (File No. 1-31565)
148
(6)
(7)
(8)
(9)
(10)
(11)
(12)
(13)
(14)
(15)
Incorporated by reference to Exhibits filed with the Company’s Form 10-Q filed with the Securities and
Exchange Commission on November 9, 2017 (File No. 1-31565)
Incorporated by reference to Exhibits filed with the Company’s Form 8-K filed with the Securities and
Exchange Commission on March 17, 2017
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 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 filed 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. 33-85682
Incorporated by reference to Exhibits filed with the 1995 Proxy Statement for the Annual Meeting of
Shareholders held on April 19, 1995
Incorporated by reference to Exhibits filed with the 2006 Proxy Statement for the Annual Meeting of
Shareholders held on June 7, 2006
Incorporated by reference to Exhibits filed with the 2012 Proxy Statement for the Annual Meeting of
Shareholders held on June 7, 2012
Incorporated by reference to Exhibits filed with the Company’s Form 8-K filed with the Securities and
Exchange Commission on March 16, 2017 (File No. 1-31565)
ITEM 16. FORM 10-K SUMMARY
None.
149
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, 2018
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/ 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/ Michael J. Levine
Michael J. Levine
Director
/s/ Lawrence Rosano, Jr.
Lawrence Rosano, Jr.
Director
/s/ Lawrence J. Savarese
Lawrence J. Savarese
Director
/s/ Robert Wann
Robert Wann
Senior Executive Vice President,
Chief Operating Officer, and Director
/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/ Leslie D. Dunn
Leslie D. Dunn
Director
/s/ James J. O’Donovan
James J. O’Donovan
Director
/s/ Ronald A. Rosenfeld
Ronald A. Rosenfeld
Director
/s/ John M. Tsimbinos
John M. Tsimbinos
Director
3/1/18
3/1/18
3/1/18
3/1/18
3/1/18
3/1/18
3/1/18
3/1/18
3/1/18
3/1/18
3/1/18
3/1/18
3/1/18
3/1/18
150
STATEMENT RE: RATIO OF EARNINGS TO FIXED CHARGES
EXHIBIT 12.0
(dollars in thousands)
Including Interest Paid on Deposits:
Earnings (loss) 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 (loss) 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,
2017
2016
2015
$ 668,215
$ 777,128
$(132,013)
229,782
222,454
11,219
$ 463,455
$ 1,131,670
2.44x
171,023
216,464
11,081
$ 398,568
$ 1,175,696
2.95 x
160,149
349,604
11,206
$ 520,959
$ 388,946
0.75 x
$ 668,215
$ 777,128
$(132,013)
222,454
11,219
$ 233,673
$ 901,888
3.86x
216,464
11,081
$ 227,545
$ 1,004,673
4.42 x
349,604
11,206
$ 360,810
$ 228,797
0.63 x
151
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. 333-218358, 333-182334, 333-
146512, 333-135279, 333-130908, 333-110361, 333-105901, 333-89826, 333-66366, 333-51988, and 333-32881) on
Form S-8 and the registration statements (Nos. 333-188181, 333-188178, 333-129338, 333-105350, 333-100767, 333-
86682, 333-150442, 333-152147, 333-166080, 333-210919, and 333-210917, and 333-218358) on Form S-3 of New
York Community Bancorp, Inc. of our reports dated March 1, 2018, with respect to the consolidated statements of
condition of New York Community Bancorp, Inc. as of December 31, 2017 and 2016, and the related consolidated
statements of operations and comprehensive income (loss), changes in stockholders’ equity, and cash flows for each
of the years in the three-year period ended December 31, 2017, and the related notes (collectively the “consolidated
financial statements”), and the effectiveness of internal control over financial reporting as of December 31, 2017,
which reports appear in the December 31, 2017 annual report on Form 10-K of New York Community Bancorp, Inc.
New York, New York
March 1, 2018
152
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, 2018
BY: /s/ Joseph R. Ficalora
Joseph R. Ficalora
President and Chief Executive Officer
(Duly Authorized Officer)
153
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, 2018
BY: /s/ Thomas R. Cangemi
Thomas R. Cangemi
Senior Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
154
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, 2017 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, 2018
DATE: March 1, 2018
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)
155
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DIVIDEND POLICY
Dividends are typically announced in our quarterly earnings releases
in January, April, July, and October, and are typically paid during the
third or fourth weeks of the following months. Information regarding
record and payable dates may be found in our earnings releases or
dividend announcements, and by visiting ir.myNYCB.com, clicking on
“Stock Information,” and then 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 reinvesting 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 divi-
dends 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
Our 2018 Annual Meeting of Shareholders will be held at 10:00 a.m.
Eastern Time on Tuesday, June 5th, at the Sheraton LaGuardia East
Hotel, 135-20 39th Avenue, in Flushing, New York. Shareholders of record
as of April 10, 2018 will be eligible to receive notice of, and to vote at,
the 2018 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 infor-
mation 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.
Depositary shares, each representing a 1/40th interest in a share of
Fixed-to-Floating Rate Series A Noncumulative Perpetual Preferred Stock,
trade on the New York Stock Exchange under the symbol “NYCB PR A.”
The Bifurcated Option Note Unit SecuritiESSM (“BONUSES units”) issued
through the Company’s subsidiary, New York Community Capital Trust V,
trade on the New York Stock Exchange under the symbol “NYCB PR U.”
SHAREHOLDER REFERENCE
CORPORATE HEADQUARTERS
615 Merrick Avenue
Westbury, NY 11590-6607
(516) 683-4100
Phone:
Fax:
(516) 683-8385
Online: www.myNYCB.com
INVESTOR RELATIONS
Shareholders, analysts, and others seeking information about New York
Community Bancorp, Inc. are invited to contact our Investor Relations
Department at:
Phone:
Fax:
(516) 683-4420
(516) 683-4424
E-mail:
Online:
ir@myNYCB.com
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
“Financial Information.” 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 addition, 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 divi-
dend 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 CenterTM. In addition, 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: (800) 231-5469
International: (201) 680-6610
By U.S. mail:
P.O. Box 505000
Louisville, KY 40233-5000
By overnight mail:
462 South 4th Street, Suite 1600
Louisville, KY 40233-5000
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.
Corporate Directory
NEW YORK COMMUNITY
BANCORP, INC.
BOARD OF DIRECTORS(1)
CHAIRMAN OF THE BOARD
Dominick Ciampa(2)
Founder
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
Leslie D. Dunn
Independent Director
Federal Home Loan Bank of Cincinnati
Joseph R. Ficalora(5)
President and Chief Executive Officer
New York Community Bancorp, Inc.
Michael J. Levine(6)
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.
Lawrence Rosano, Jr.(7)
President, Associated Development Corp.
and Associated Properties, Inc.
Ronald A. Rosenfeld
Chairman (retired)
Federal Housing Finance Board
Lawrence J. Savarese(8)
Senior Partner (retired)
KPMG
John M. Tsimbinos
Chairman and Chief Executive Officer (retired)
TR Financial Corp. and Roosevelt Savings Bank
Robert Wann
Senior Executive Vice President and
Chief Operating Officer
New York Community Bancorp, Inc.
PRINCIPAL 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
John J. Pinto
Executive Vice President and
Chief Accounting Officer
EXECUTIVE VICE PRESIDENTS
John T. Adams
Chief Credit Officer
Robert D. Brown
Chief Information Officer
Anthony E. Donatelli
Acting Chief Risk Officer
Frank Esposito
Director, Loan Administration
Cynthia S. Flynn
Chief Administrative Officer
Andrew Kaplan
Director, Retail Products and Services;
President, NYCB Insurance Agency, Inc.
Eric S. Kracov
Chief Human Resources Officer
Joyce Larson
Chief Corporate Business Process
Management Officer
Anthony M. Lewis
Chief Asset Review, Recovery,
and Disposition Officer
Nicholas C. Munson
Chief Audit Executive
R. Patrick Quinn, Esq.
Chief Corporate Governance Officer
and Corporate Secretary
Barbara A. Tosi-Renna
Assistant Chief Operating Officer
Thomas J. Zammit
Chief Appraiser
AFFILIATE OFFICERS
NEW YORK COMMUNITY BANK
Kenneth M. Scheriff
Executive Vice President, Premier Banking
NEW YORK COMMERCIAL BANK
Athanassia “Nancy” Papaioannou
President, Atlantic Bank Division
Robert T. Stratford, Jr.
Managing Director and Chief Lending Officer
NYCB SPECIALTY FINANCE CO., LLC
John F. X. Chipman
Executive Vice President and Director,
Specialty Finance
PETER B. CANNELL & CO., INC.
Joseph B. Werner
Chairman, President, and Chief Executive Officer
DIVISIONAL BANK DIRECTORS
QUEENS COUNTY SAVINGS BANK/
ROSLYN SAVINGS BANK
Joseph R. Ficalora
President, QCSB Division
Thomas J. Calabrese, Jr.
President, RSLN Division;
Vice President, Operations
Daniel Gale Agency
Hon. Claire Shulman
Queens Borough President (retired);
President and Chief Executive Officer
Flushing Willets Point Corona LDC
Michael R. Stoler
Managing Director
Madison Realty Capital
RICHMOND COUNTY SAVINGS BANK
Michael F. Manzulli
Chairman, RCBK Division
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
Lisa Giovinazzo, Esq.
Legal Director, SIDMC
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
ATLANTIC BANK
Joseph R. Ficalora
Chairman and CEO, Atlantic Bank Division
Nicolas Bornozis
President
Capital Link Inc.
John Catsimatidis
Chairman and Chief Executive Officer
Red Apple Group
Andrew J. Jacovides
Former Ambassador, Cyprus
Comin Nicholas “Nick” Kafes
Senior Vice President, High Yield Bond Trading
Tullett Prebon Financial Services LLC
Savas Konstantinides
President and Chief Executive Officer
Omega Brokerage
Spiros Milonas
President
Ionian Management Inc.
Mitchell Rutter
President
Essex Capital Partners
John M. Tsimbinos
OHIO SAVINGS BANK
Ronald A. Rosenfeld
Chairman, OSB Division
Leslie D. Dunn
Robert P. Duvin
Partner
Littler Mendelson, PC
Keith V. Mabee
Group President
Corporate Communications and Investor Relations
Falls Communications
(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 Boards.
(4) Mr. Dahya chairs the Investment Committee of
the Boards.
(5) Mr. Ficalora serves as a director on each of the
Divisional Boards.
(6) Mr. Levine chairs the Risk Assessment and
Nominating and Corporate Governance
Committees of the Boards.
(7) Mr. Rosano serves as Vice Chairman of the Risk
Assessment Committee of the Boards.
(8) Mr. Savarese chairs the Audit Committee of
the Boards.
N E W YO R K C O M M U N I T Y B A N C O R P, I N C .
615 M E R R I C K AV E N U E , W E S T B U RY, N E W YO R K 115 9 0
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