For the Quarterly Period Ended September 30, 2010
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

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

THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended September 30, 2010

Commission File Number 1-31565

 

 

NEW YORK COMMUNITY BANCORP, INC.

(Exact name of registrant as specified in its charter)

 

 

 

Delaware   06-1377322

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

615 Merrick Avenue, Westbury, New York 11590

(Address of principal executive offices)

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

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No   ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large Accelerated Filer   x    Accelerated Filer   ¨
Non-accelerated Filer   ¨    Smaller Reporting Company   ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

435,611,875

Number of shares of common stock outstanding at

November 3, 2010

 

 

 


Table of Contents

 

NEW YORK COMMUNITY BANCORP, INC.

FORM 10-Q

Quarter Ended September 30, 2010

 

INDEX

   Page No.  
Part I.    FINANCIAL INFORMATION   

Item 1.

   Financial Statements   
   Consolidated Statements of Condition as of September 30, 2010 (unaudited) and December 31, 2009      1   
   Consolidated Statements of Income and Comprehensive Income for the Three and Nine Months Ended September 30, 2010 and 2009 (unaudited)      2   
   Consolidated Statement of Changes in Stockholders’ Equity for the Nine Months Ended September 30, 2010 (unaudited)      3   
   Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2010 and 2009 (unaudited)      4   
   Notes to the Unaudited Consolidated Financial Statements      5   

Item 2.

   Management’s Discussion and Analysis of Financial Condition and Results of Operations      40   

Item 3.

   Quantitative and Qualitative Disclosures about Market Risk      79   

Item 4.

   Controls and Procedures      79   
Part II.    OTHER INFORMATION   

Item 1.

   Legal Proceedings      80   

Item 1A.

   Risk Factors      80   

Item 2.

   Unregistered Sales of Equity Securities and Use of Proceeds      80   

Item 3.

   Defaults Upon Senior Securities      81   

Item 4.

   Removed and Reserved      81   

Item 5.

   Other Information      81   

Item 6.

   Exhibits      81   
Signatures      82   
Exhibits   


Table of Contents

 

NEW YORK COMMUNITY BANCORP, INC.

CONSOLIDATED STATEMENTS OF CONDITION

(in thousands, except share data)

 

     September 30,
2010
    December 31,
2009
 
     (unaudited)        

Assets:

    

Cash and cash equivalents

   $ 2,235,091      $ 2,670,857   

Securities available for sale:

    

Mortgage-related ($489,317 and $602,233 pledged, respectively)

     542,929        774,205   

Other securities ($65,060 and $302,022 pledged, respectively)

     185,236        744,441   
                

Total available-for-sale securities

     728,165        1,518,646   
                

Securities held to maturity:

    

Mortgage-related ($3,109,757 and $2,459,161 pledged, respectively) (fair value of $3,248,297 and $2,551,608, respectively)

     3,141,279        2,465,956   

Other securities ($658,929 and $1,564,585 pledged, respectively) (fair value of $858,116 and $1,698,054, respectively)

     856,515        1,757,641   
                

Total held-to-maturity securities

     3,997,794        4,223,597   
                

Total securities

     4,725,959        5,742,243   

Loans held for sale

     1,368,889        —     

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

     23,604,552        23,376,599   

Less: Allowance for loan losses

     (155,866     (127,491
                

Non-covered loans held for investment, net

     23,448,686        23,249,108   

Covered loans (includes $351.3 million of loans held for sale at December 31, 2009)

     4,473,718        5,016,100   
                

Total loans, net

     29,291,293        28,265,208   

Federal Home Loan Bank (“FHLB”) stock, at cost

     447,185        496,742   

Premises and equipment, net

     199,817        205,165   

FDIC loss share receivable

     811,623        743,276   

Goodwill

     2,436,325        2,436,401   

Core deposit intangibles, net

     85,407        105,764   

Bank-owned life insurance

     735,435        715,962   

Other real estate owned ($56.9 million covered by FDIC loss sharing agreements at September 30, 2010)

     76,427        15,205   

Other assets

     661,876        757,046   
                

Total assets

   $ 41,706,438      $ 42,153,869   
                

Liabilities and Stockholders’ Equity:

    

Deposits:

    

NOW and money market accounts

   $ 8,204,752      $ 7,706,288   

Savings accounts

     3,887,736        3,788,294   

Certificates of deposit

     8,209,296        9,053,891   

Non-interest-bearing accounts

     1,925,607        1,767,938   
                

Total deposits

     22,227,391        22,316,411   
                

Borrowed funds:

    

FHLB advances

     8,429,664        8,955,769   

Repurchase agreements

     4,125,000        4,125,000   
                

Total wholesale borrowings

     12,554,664        13,080,769   

Junior subordinated debentures

     427,079        427,371   

Other borrowings

     613,435        656,546   
                

Total borrowed funds

     13,595,178        14,164,686   

Other liabilities

     388,571        305,870   
                

Total liabilities

     36,211,140        36,786,967   
                

Stockholders’ equity:

    

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

     —          —     

Common stock at par $0.01 (600,000,000 shares authorized; 435,586,117 and 433,197,332 shares issued and outstanding, respectively)

     4,356        4,332   

Paid-in capital in excess of par

     5,281,201        5,238,231   

Retained earnings

     245,597        175,193   

Unallocated common stock held by Employee Stock Ownership Plan (“ESOP”)

     (245     (951

Accumulated other comprehensive loss, net of tax:

    

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

     22,235        (457

Net unrealized losses on the non-credit portion of other-than-temporary impairment (“OTTI”) losses and securities transferred from available-for-sale to held to maturity, net of tax

     (20,594     (9,744

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

     (37,252     (39,702
                

Total accumulated other comprehensive loss, net of tax

     (35,611     (49,903
                

Total stockholders’ equity

     5,495,298        5,366,902   
                

Total liabilities and stockholders’ equity

   $ 41,706,438      $ 42,153,869   
                

See accompanying notes to the unaudited consolidated financial statements.

 

1


Table of Contents

 

NEW YORK COMMUNITY BANCORP, INC.

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

(in thousands, except per share data)

(unaudited)

 

     For the
Three Months Ended
September 30,
    For the
Nine Months Ended
September 30,
 
     2010     2009     2010     2009  

Interest Income:

        

Mortgage and other loans

   $ 410,178      $ 327,120      $ 1,241,021      $ 970,477   

Securities and money market investments

     57,252        75,816        191,974        234,261   
                                

Total interest income

     467,430        402,936        1,432,995        1,204,738   
                                

Interest Expense:

        

NOW and money market accounts

     12,542        7,380        45,386        22,257   

Savings accounts

     4,824        3,687        16,369        11,468   

Certificates of deposit

     33,847        35,482        108,727        132,822   

Borrowed funds

     130,029        130,027        387,540        387,331   
                                

Total interest expense

     181,242        176,576        558,022        553,878   
                                

Net interest income

     286,188        226,360        874,973        650,860   

Provision for loan losses

     32,000        15,000        74,000        33,000   
                                

Net interest income after provision for loan losses

     254,188        211,360        800,973        617,860   
                                

Non-Interest Income:

        

Total loss on OTTI of securities

     (12,790     (22,550     (26,456     (73,623

Less: Non-credit portion of OTTI recorded in other comprehensive income (before taxes)

     11,964        9,275        24,485        20,620   
                                

Net loss on OTTI recognized in earnings

     (826     (13,275     (1,971     (53,003

Fee income

     13,403        9,682        41,456        28,255   

Bank-owned life insurance

     6,792        6,914        20,968        20,482   

Net loss on sale of securities

     —          —          (8     —     

Gain on business acquisition

     —          —          10,780        —     

Gain on debt repurchases/exchange

     2,441        5,717        2,734        5,717   

Mortgage banking income

     76,465        —          143,497        —     

Other

     8,828        6,034        25,104        18,086   
                                

Total non-interest income

     107,103        15,072        242,560        19,537   
                                

Non-Interest Expense:

        

Operating expenses:

        

Compensation and benefits

     72,874        46,093        207,571        133,560   

Occupancy and equipment

     22,019        17,700        65,799        54,343   

General and administrative

     48,378        26,274        132,244        88,002   
                                

Total operating expenses

     143,271        90,067        405,614        275,905   

Amortization of core deposit intangibles

     7,818        5,412        23,593        16,575   
                                

Total non-interest expense

     151,089        95,479        429,207        292,480   
                                

Income before income taxes

     210,202        130,953        614,326        344,917   

Income tax expense

     74,593        32,380        218,310        101,207   
                                

Net Income

   $ 135,609      $ 98,573      $ 396,016      $ 243,710   
                                

Other comprehensive income, net of tax:

        

Change in net unrealized gain on securities and non-credit portion of OTTI for the period

     16,413        6,797        11,842        16,091   

Change in pension and post-retirement obligations

     781        1,110        2,450        3,424   
                                

Total comprehensive income, net of tax

   $ 152,803      $ 106,480      $ 410,308      $ 263,225   
                                

Basic earnings per share

   $ 0.31      $ 0.28      $ 0.91      $ 0.70   
                                

Diluted earnings per share

   $ 0.31      $ 0.28      $ 0.91      $ 0.70   
                                

See accompanying notes to the unaudited consolidated financial statements.

 

2


Table of Contents

 

NEW YORK COMMUNITY BANCORP, INC.

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

(in thousands, except share data)

(unaudited)

 

     Nine Months Ended  
     September 30, 2010  

Common Stock (Par Value: $0.01):

  

Balance at beginning of year

   $ 4,332   

Shares issued for restricted stock awards (374,858 shares)

     4   

Shares issued for stock options exercised (247,445 shares)

     3   

Shares issued in connection with the direct stock purchase feature of the Dividend Reinvestment and Stock Purchase Plan (“DRP”) (1,766,482 shares)

     17   
        

Balance at end of period

     4,356   
        

Paid-in Capital in Excess of Par:

  

Balance at beginning of year

     5,238,231   

Allocation of ESOP stock

     2,886   

Shares issued for restricted stock awards, net of forfeitures

     (1,145

Compensation expense related to restricted stock awards

     8,291   

Exercise of stock options

     2,486   

Tax effect of stock plans

     1,534   

Shares issued in connection with the direct stock purchase feature of the DRP

     28,918   
        

Balance at end of period

     5,281,201   
        

Retained Earnings:

  

Balance at beginning of year

     175,193   

Net income

     396,016   

Dividends paid on common stock ($0.75 per share)

     (325,612
        

Balance at end of period

     245,597   
        

Treasury Stock:

  

Balance at beginning of year

     —     

Purchase of common stock (181,935 shares)

     (2,868

Exercise of stock options (109,593 shares)

     1,727   

Shares issued for restricted stock awards (72,342 shares)

     1,141   
        

Balance at end of period

     —     
        

Unallocated Common Stock Held by ESOP:

  

Balance at beginning of year

     (951

Earned portion of ESOP

     706   
        

Balance at end of period

     (245
        

Accumulated Other Comprehensive Loss, net of tax:

  

Balance at beginning of year

     (49,903

Change in net unrealized gain on securities available for sale, net of tax of $14,031

     21,545   

Non-credit portion of OTTI loss recognized in other comprehensive income, net of tax of $9,657

     (14,829

Amortization of net unrealized loss on securities transferred from available for sale to held to maturity, net of tax of $2,557

     3,927   

Change in pension and post-retirement obligations, net of tax of $1,604

     2,450   

Reclassification adjustment for loss on sale and OTTI of securities, net of tax of $780

     1,199   
        

Balance at end of period

     (35,611
        

Total stockholders’ equity at end of period

   $ 5,495,298   
        

See accompanying notes to the unaudited consolidated financial statements.

 

3


Table of Contents

 

NEW YORK COMMUNITY BANCORP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

 

     Nine Months Ended
September 30,
 
     2010     2009  

Cash Flows from Operating Activities:

    

Net income

   $ 396,016      $ 243,710   

Adjustments to reconcile net income to net cash used in operating activities:

    

Provision for loan losses

     74,000        33,000   

Depreciation and amortization

     14,682        15,027   

Amortization of premiums (accretion of discounts), net

     3,218        (4,537

Net change in net deferred loan origination costs and fees

     2,403        (1,625

Amortization of core deposit intangibles

     23,594        16,575   

Net loss on sale of securities

     8        —     

Net gain on sale of loans

     (99,582     (536

Gain on business acquisition

     (10,780     —     

Stock plan-related compensation

     11,884        9,898   

Loss on OTTI of securities recognized in earnings

     1,971        53,003   

Changes in assets and liabilities:

    

Decrease (increase) in deferred tax asset, net

     5,649        (54,905

Decrease (increase) in other assets

     33,522        (41,066

Increase (decrease) in other liabilities

     80,567        (157,556

Origination of loans held for sale

     (7,021,169     (78,537

Proceeds from sale of loans originated for sale

     6,082,210        76,733   
                

Net cash (used in) provided by operating activities

     (401,807     109,184   
                

Cash Flows from Investing Activities:

    

Proceeds from repayment of securities held to maturity

     3,514,161        2,039,229   

Proceeds from repayment of securities available for sale

     813,896        193,341   

Proceeds from sale of securities available for sale

     660        —     

Purchase of securities held to maturity

     (3,292,660     (1,808,546

Net redemption (purchase) of FHLB stock

     53,144        (22,049

Net decrease (increase) in loans

     132,765        (863,258

Purchase of premises and equipment, net

     (9,334     (4,887

Net cash acquired in business acquisition

     140,895        —     
                

Net cash provided by (used in) investing activities

     1,353,527        (466,170
                

Cash Flows from Financing Activities:

    

Net (decrease) increase in deposits

     (479,662     92,253   

Net increase in short-term borrowed funds

     300,000        366,600   

Net (decrease) increase in long-term borrowed funds

     (914,012     39,763   

Tax effect of stock plans

     1,533        3,794   

Cash dividends paid on common stock

     (325,612     (258,202

Treasury stock purchases

     (2,868     (1,289

Net cash received from stock option exercises

     4,200        25   

Proceeds from issuance of common stock, net

     28,935        64,664   
                

Net cash (used in) provided by financing activities

     (1,387,486     307,608   
                

Net decrease in cash and cash equivalents

     (435,766     (49,378

Cash and cash equivalents at beginning of period

     2,670,857        203,216   
                

Cash and cash equivalents at end of period

   $ 2,235,091      $ 153,838   
                

Supplemental information:

    

Cash paid for interest

   $ 603,369      $ 554,481   

Cash paid for income taxes

     233,878        170,914   

Non-cash investing and financing activities:

    

Transfers to other real estate owned from loans

   $ 51,542      $ 14,372   

Exchange of debt for common stock

     —          39,153   

 

Note:   Excluding the core deposit intangible and the FDIC loss share receivable, the fair values of non-cash assets acquired and of liabilities assumed in the acquisition of Desert Hills Bank on March 26, 2010 were $245.4 million and $445.6 million, respectively.

See accompanying notes to the unaudited consolidated financial statements.

 

4


Table of Contents

 

NEW YORK COMMUNITY BANCORP, INC.

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Basis of Presentation

The accompanying unaudited consolidated financial statements include the accounts of New York Community Bancorp, Inc. and subsidiaries (the “Company”), including its two bank subsidiaries, New York Community Bank (the “Community Bank”) and New York Commercial Bank (the “Commercial Bank”). The unaudited consolidated financial statements reflect all normal recurring adjustments that, in the opinion of management, are necessary to present a fair statement of the results for the periods presented. There are no other adjustments reflected in the accompanying consolidated financial statements. The results of operations for the three and nine months ended September 30, 2010 are not necessarily indicative of the results of operations that may be expected for all of 2010.

Certain information and note disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) have been condensed or omitted, pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (the “SEC”).

The unaudited consolidated financial statements include the accounts of the Company and other entities in which the Company has a controlling financial interest. All inter-company balances and transactions have been eliminated. These unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s 2009 Annual Report on Form 10-K.

Certain reclassifications have been made to the prior-period consolidated financial statements to conform to the current-period presentation.

Note 2. Business Combinations

AmTrust Bank

On December 4, 2009, the Community Bank acquired certain assets and assumed certain liabilities of AmTrust Bank (“AmTrust”) from the FDIC in an FDIC-assisted transaction (the “AmTrust acquisition”). Headquartered in Cleveland, Ohio, AmTrust was a savings bank that operated 29 branches in Ohio, 25 branches in Florida, and 12 branches in Arizona.

The purpose of the AmTrust acquisition was to expand the Company’s footprint into new markets, and to enhance its funding mix with the acquisition of low-cost core deposits.

As part of the Purchase and Assumption Agreement entered into by the Community Bank with the FDIC in connection with the AmTrust acquisition, the Community Bank entered into loss sharing agreements, in accordance with which the FDIC will cover a substantial portion of any future losses on the acquired loans. The acquired loans that are subject to the loss sharing agreements are collectively referred to as “covered loans.” Under the terms of the loss sharing agreements, the FDIC is obligated to reimburse the Community Bank for 80% of losses up to $907.0 million and 95% of losses in excess of $907.0 million with respect to the covered loans. The Community Bank will reimburse the FDIC for 80% of recoveries with respect to losses for which the FDIC paid the Community Bank 80% reimbursement, and for 95% of recoveries with respect to losses for which the FDIC paid the Community Bank 95% reimbursement under the loss sharing agreements. The expected net reimbursements under the loss sharing agreements were recorded as an indemnification asset (an “FDIC loss share receivable”) at an estimated fair value of $740.0 million on the acquisition date. The loss sharing agreements are subject to the Company following certain servicing procedures, as specified in the loss sharing agreements with the FDIC.

Furthermore, the Community Bank has agreed to pay to the FDIC, on January 18, 2020 (the “True-Up Measurement Date”), half of the amount, if positive, calculated as (1) $181,400,000 minus (2) the sum of (a) 25% of the asset discount bid made in connection with the AmTrust acquisition; (b) 25% of the Cumulative Shared-Loss Payments (as defined below); and (c) the sum of the period servicing amounts for every consecutive twelve-month period prior to, and ending on, the True-Up Measurement Date in respect of each of the shared loss agreements during which the applicable shared loss agreement is in effect (with such period servicing amounts to equal, for any

 

5


Table of Contents

NEW YORK COMMUNITY BANCORP, INC.

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

twelve-month period with respect to which each of the shared loss agreements during which such shared loss agreement is in effect, the product of the simple average of the principal amount of shared loss loans and shared loss assets at the beginning and end of such period and 1%). For the purposes of the above calculation, Cumulative Shared-Loss Payments means (i) the aggregate of all of the payments made or payable to the Community Bank under the shared-loss agreements minus (ii) the aggregate of all of the payments made or payable to the FDIC under the shared-loss agreements.

These reimbursable losses and recoveries are based on the book value of the relevant loans as determined by the FDIC as of the effective date of the AmTrust acquisition. The amount that the Community Bank realizes on these loans could differ materially from the carrying value that will be reflected in any financial statements, based upon the timing and amount of collections and recoveries on the covered loans in future periods.

Based on the closing with the FDIC as of December 4, 2009, the Community Bank (a) acquired $5.0 billion in loans, $760.0 million in investment securities, $4.0 billion in cash and cash equivalents (including $3.2 billion due from, and subsequently paid by, the FDIC), and $1.2 billion in other assets; and (b) assumed $8.2 billion in deposits, $2.6 billion in borrowings, and $92.5 million in other liabilities.

The Company has determined that the AmTrust acquisition constitutes a business combination as defined by Codification Topic 805, “Business Combinations.” Codification Topic 805 establishes principles and requirements as to how the acquirer of a business recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any non-controlling interest in the acquiree. Accordingly, the acquired assets, including the FDIC loss share receivable (which is accounted for as an indemnification asset under Codification Topic 805) and identifiable intangible assets, and the liabilities assumed in the AmTrust acquisition, were measured and recorded at estimated fair value as of the December 4, 2009 acquisition date.

The application of the acquisition method of accounting resulted in a bargain purchase gain of $139.6 million, which is included in “non-interest income” in the Company’s Consolidated Statement of Income and Comprehensive Income for the year ended December 31, 2009. This gain amounted to $84.2 million after-tax.

Because of the short time period between the December 4, 2009 closing of the transaction and the end of the Company’s fiscal year on December 31, 2009, the Company continues to analyze its estimates of the fair values of the loans acquired and the indemnification asset recorded. As the Company finalizes its analysis of these assets, there may be adjustments to the recorded carrying values.

A summary of the net assets acquired and the estimated fair value adjustments resulting in the net gain follows:

 

(in thousands)    December 4, 2009  

AmTrust’s cost basis liabilities in excess of assets

   $ (2,799,630

Cash payments received from the FDIC

     3,220,650   
        

Net assets acquired before fair value adjustments

     421,020   

Fair value adjustments:

  

Loans

     (946,083

FDIC loss share receivable

     740,000   

Core deposit intangible

     40,797   

Federal Home Loan Bank (“FHLB”) borrowings

     (69,814

Repurchase agreements

     (11,180

Certificates of deposit

     (26,858

FDIC equity appreciation instrument

     (8,275
        

Pre-tax gain on the AmTrust acquisition

   $ 139,607   

Deferred income tax liability

     (55,410
        

Net after-tax gain on the AmTrust acquisition

   $ 84,197   
        

The net after-tax gain represents the excess of the estimated fair value of the assets acquired (including cash payments received from the FDIC) over the estimated fair value of the liabilities assumed, and is influenced significantly by the FDIC-assisted transaction process. Under the FDIC-assisted transaction process, only certain assets and liabilities are transferred to the acquirer and, depending on the nature and amount of the acquirer’s bid,

 

6


Table of Contents

NEW YORK COMMUNITY BANCORP, INC.

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

the FDIC may be required to make a cash payment to the acquirer. As indicated in the preceding table, net liabilities of $2.8 billion (i.e., the cost basis) were transferred to the Company in the AmTrust acquisition, and the FDIC made cash payments to the Company totaling $3.2 billion.

In many cases, the determination of the fair value of the assets acquired and liabilities assumed required management to make estimates about discount rates, future expected cash flows, market conditions, and other future events that are highly subjective in nature and subject to change. These fair value estimates are considered preliminary, and are subject to change for up to one year after the closing date of the acquisition as additional information relative to closing date fair values becomes available. The Community Bank and the FDIC may engage in discussions that may impact which assets and liabilities are ultimately acquired or assumed by the Community Bank and/or the purchase price.

The following table sets forth the assets acquired and liabilities assumed, at fair value, in the AmTrust acquisition:

 

(in thousands)    December 4, 2009  

Assets

  

Cash and cash equivalents

   $ 4,021,454   

Securities available for sale:

  

Mortgage-related securities

     121,846   

Other securities

     638,170   
        

Total securities

     760,016   

Loans covered by loss sharing agreements:

  

One- to four-family mortgage loans

     4,701,591   

Home equity lines of credit (“HELOCs”) and consumer loans

     314,412   
        

Total loans covered by loss sharing agreements

     5,016,003   

FDIC loss share receivable

     740,000   

FHLB-Cincinnati stock

     110,592   

Core deposit intangible

     40,797   

Other assets

     275,827   
        

Total assets acquired

   $ 10,964,689   

Liabilities

  

Deposits:

  

NOW and money market accounts

   $ 2,861,172   

Savings accounts

     878,365   

Certificates of deposit

     3,853,929   

Non-interest-bearing accounts

     613,678   
        

Total deposits

     8,207,144   

Borrowed funds:

  

FHLB advances

     2,119,632   

Repurchase agreements

     461,180   
        

Total borrowed funds

     2,580,812   

Other liabilities

     92,536   
        

Total liabilities assumed

   $ 10,880,492   
        

Net assets acquired

   $ 84,197   
        

In addition, as part of the consideration for the transaction, the Company issued an equity appreciation instrument to the FDIC. Under the terms of the equity appreciation instrument, the FDIC had the opportunity to obtain, at the sole option of the Company, a cash payment or shares of its common stock with a value equal to the product of (a) $25 million and (b) the amount by which the average of the volume-weighted average price of its common stock for each of the two New York Stock Exchange trading days immediately prior to the exercise of the equity appreciation instrument exceeded $12.33. The equity appreciation instrument was exercisable by the FDIC from December 9, 2009 through December 23, 2009 and was valued at $8.3 million when issued. The FDIC exercised the equity appreciation instrument, which was settled in cash for $23.3 million by the Company.

In December 2009, the Company extinguished the acquired repurchase agreements with a cash payment of $461.2 million.

 

7


Table of Contents

NEW YORK COMMUNITY BANCORP, INC.

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

 

Desert Hills Bank

On March 26, 2010, the Community Bank acquired certain assets and assumed certain liabilities of Desert Hills Bank (“Desert Hills”) from the FDIC in an FDIC-assisted transaction (the “Desert Hills acquisition”). Headquartered in Phoenix, Arizona, Desert Hills operated six branch locations in Arizona. In the second quarter of 2010, three of those locations were consolidated into neighboring branches of AmTrust Bank.

The purpose of the Desert Hills acquisition was to strengthen the Company’s franchise in Arizona and to enhance its funding mix with the acquisition of low-cost core deposits.

As part of the Purchase and Assumption Agreement entered into by the Community Bank with the FDIC in connection with the Desert Hills acquisition, the Community Bank entered into loss sharing agreements in accordance with which the FDIC will cover a substantial portion of any future losses on loans and other real estate owned (“OREO”). The acquired loans that are subject to the loss sharing agreements are collectively referred to as “covered loans” and the acquired OREO that is subject to the loss sharing agreements is collectively referred to as “covered OREO.” The loans and OREO acquired in the Desert Hills acquisition are referred to collectively as “covered assets.” Under the terms of the loss sharing agreements, the FDIC is obligated to reimburse the Community Bank for 80% of losses of up to $101.4 million and 95% of losses in excess of $101.4 million with respect to the covered assets.

In addition, the Community Bank will reimburse the FDIC for 80% of recoveries with respect to losses for which the FDIC paid the Community Bank 80% reimbursement, and for 95% of recoveries with respect to losses for which the FDIC paid the Community Bank 95% reimbursement under the loss sharing agreements. The expected net reimbursements under the loss sharing agreements were recorded as an indemnification asset (an FDIC loss share receivable) at an estimated fair value of $62.6 million on the acquisition date. The loss sharing agreements are subject to the Company following certain servicing procedures, as specified in the loss sharing agreements with the FDIC.

Furthermore, the Community Bank has agreed to pay to the FDIC, on May 6, 2020 (the “True-Up Measurement Date”), half of the amount, if positive, calculated as (1) $20,282,800 minus (2) the sum of (a) 25% of the asset discount bid made in connection with the Desert Hills acquisition; (b) 25% of the Cumulative Shared-Loss Payments (as defined below); and (c) the sum of the period servicing amounts for every consecutive twelve-month period prior to, and ending on, the True-Up Measurement Date in respect of each of the shared loss agreements during which the applicable shared loss agreement is in effect (with such period servicing amounts to equal, for any twelve-month period with respect to which each of the shared loss agreements during which such shared loss agreement is in effect, the product of the simple average of the principal amount of shared loss loans and shared loss assets at the beginning and end of such period and 1%). For the purposes of the above calculation, Cumulative Shared-Loss Payments means (i) the aggregate of all of the payments made or payable to the Community Bank under the shared-loss agreements minus (ii) the aggregate of all of the payments made or payable to the FDIC under the shared-loss agreements.

The reimbursable losses and recoveries discussed above are based on the book value of the relevant assets as determined by the FDIC as of the effective date of the Desert Hills acquisition. The amount that the Community Bank realizes on these assets could differ materially from the carrying value that will be reflected in any financial statements, based upon the timing and amount of collections and recoveries on the assets in future periods.

The Company has determined that the Desert Hills acquisition constitutes a business combination as defined by Codification Topic 805. Accordingly, the acquired assets, including the FDIC loss share receivable (which is accounted for as an indemnification asset under Codification Topic 805) and identifiable intangible assets, and the liabilities assumed in the Desert Hills acquisition, were measured and recorded at estimated fair value as of the March 26, 2010 acquisition date.

The application of the acquisition method of accounting resulted in a bargain purchase gain of $10.8 million, which is included in “non-interest income” in the Company’s Consolidated Statement of Income and Comprehensive Income for the nine months ended September 30, 2010. This gain amounted to $6.6 million after-tax.

 

8


Table of Contents

NEW YORK COMMUNITY BANCORP, INC.

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

 

Under the FDIC-assisted transaction process, only certain assets and liabilities are transferred to the acquirer and, depending on the nature and amount of the acquirer’s bid, the FDIC may be required to make a cash payment to the acquirer. The Community Bank acquired assets at fair value including $140.9 million in cash and cash equivalents (inclusive of $86.8 million received from the FDIC), loans of $196.7 million, OREO of $38.6 million, and securities of $5.2 million. The Community Bank also assumed, at fair value, $390.6 million in deposits and $44.5 million in FHLB-San Francisco advances. These advances were extinguished by the Community Bank in March with a cash payment of $44.5 million on March 29, 2010.

In many cases, the determination of the fair value of the assets acquired and liabilities assumed required management to make estimates about discount rates, future expected cash flows, market conditions, and other future events that are highly subjective in nature and subject to change. These fair value estimates are considered preliminary. They are also subject to change for up to one year after the closing date of the acquisition as additional information relative to closing date fair values becomes available. The Community Bank and the FDIC may engage in discussions that may impact which assets and liabilities are ultimately acquired or assumed by the Community Bank and/or the purchase price.

Fair Value of Assets Acquired and Liabilities Assumed

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, reflecting assumptions that a market participant would use when pricing an asset or liability. In some cases, the estimation of fair values requires management to make estimates about discount rates, future expected cash flows, market conditions, and other future events that are highly subjective in nature and are subject to change. Described below are the methods used to determine the fair values of the significant assets acquired and liabilities assumed in the AmTrust and Desert Hills acquisitions.

Cash and Cash Equivalents

With respect to the AmTrust acquisition, included in cash and cash equivalents at December 4, 2009 were cash and due from banks of $394.1 million, federal funds sold of $415.0 million, and $3.2 billion due from the FDIC. Cash payments of $3.0 billion and $186.0 million were subsequently made by the FDIC to the Community Bank on December 7 and December 30, 2009, respectively. With respect to the Desert Hills acquisition, included in the $140.9 million of cash and cash equivalents acquired on March 26, 2010 was $86.8 million due from the FDIC. A cash payment of $86.8 million was subsequently made by the FDIC to the Community Bank on March 29, 2010.

The estimated fair values of cash and cash equivalents approximate their stated face amounts, as these financial instruments are either due on demand or have short-term maturities.

Investment Securities and FHLB Stock

Quoted market prices for the securities acquired were used to determine their fair values. If quoted market prices were not available for a specific security, then quoted prices for similar securities in active markets were used to estimate the fair value.

The fair value of FHLB stock approximates the redemption amount.

Loans

The acquired loan portfolios were segregated into various components for valuation purposes in order to group loans based on their significant financial characteristics, such as loan type (mortgages, HELOCs, commercial and industrial, or consumer), borrower type, and payment status (performing or non-performing). The estimated fair values of mortgage and other loans were computed by discounting the anticipated cash flows from the respective portfolios. We estimated the cash flows expected to be collected at the acquisition date by using interest rate risk and prepayment risk models that incorporated our best estimate of current key assumptions, such as default rates, loss severity rates, and prepayment speeds. Prepayment assumptions use swap rates and various relevant reference rates (e.g., U.S. Treasury obligations) as benchmarks. Prepayment assumptions are developed by reference to historical prepayment speeds of loans with similar characteristics and by developing base curves for loans with particular reset and prepayment penalty periods. Once the base curves are determined, other factors that will

 

9


Table of Contents

NEW YORK COMMUNITY BANCORP, INC.

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

influence constant prepayment rates in the future include, but are not limited to, current loan-to-value ratios, loan balances, home price appreciation, documentation type, and forward rates. Loss severity rates are based on or developed by using historical loss rates of loans in a loan performance database. The major inputs include, but are not limited to, current loan-to-value ratios, home price appreciation, payment history, original FICO scores, original debt-to-income ratios, property type, and loan balances.

The expected cash flows from the acquired loan portfolios were discounted at market rates. The discount rates assumed a risk-free rate plus an additional spread to compensate for the uncertainty inherent in the acquired loans. The methods used to estimate fair value are extremely sensitive to the assumptions and estimates used. While management attempted to use assumptions and estimates that best reflected the acquired loan portfolios and current market conditions, a greater degree of subjectivity is inherent in these values than in those determined in active markets. Accordingly, readers are cautioned in using this information for purposes of evaluating the financial condition and/or value of the Company in and of itself or in comparison with any other company.

The Company refers to the loans acquired in the AmTrust and Desert Hills acquisitions as “covered loans” because the Company will be reimbursed for a substantial portion of any future losses on these loans under the terms of the FDIC loss sharing agreements. Covered loans are accounted for under Codification Topic 310-30, “Loans and Debt Securities Acquired with Deteriorated Credit Quality” and initially measured at fair value, which includes estimated future credit losses expected to be incurred over the lives of the loans. On the acquisition dates, the Company estimated the fair value of the acquired loan portfolios, excluding loans held for sale, which represented the expected cash flows from the portfolio discounted at market-based rates. In estimating such fair value, the Company (a) calculated the contractual amount and timing of undiscounted principal and interest payments (the “undiscounted contractual cash flows”); and (b) estimated the amount and timing of undiscounted expected principal and interest payments (the “undiscounted expected cash flows”). The amount by which the undiscounted expected cash flows exceed the estimated fair value (the “accretable yield”) is accreted into interest income over the life of the loans. The difference between the undiscounted contractual cash flows and the undiscounted expected cash flows is referred to as the “non-accretable difference.” The non-accretable difference represents an estimate of the credit risk in the acquired loan portfolios at the acquisition dates. Under Codification Topic 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.

Other Real Estate Owned (“OREO”)

OREO is recorded at its estimated fair value on the date of acquisition, based on independent appraisals less estimated selling costs.

FDIC Loss Share Receivable

The respective FDIC loss share receivables were measured separately from the respective covered assets as they are not contractually embedded in any of the covered loans or covered OREO. For example, the loss share receivable related to estimated future loan losses is not transferable should the Company sell a loan prior to foreclosure or maturity. The fair value of the combined loss share receivable represents the present value of the estimated cash payments expected to be received from the FDIC for future losses on covered assets, based on the credit adjustment estimated for each covered asset and the loss sharing percentages. These cash flows reflect the uncertainty of the timing and receipt of the loss sharing reimbursements from the FDIC and are discounted at a market-based rate. The amount ultimately collected for this asset is dependent upon the performance of the underlying covered assets, the passage of time, and claims submitted to the FDIC.

Core Deposit Intangible (“CDI”)

CDI is a measure of the value of non-interest-bearing accounts, checking accounts, savings accounts, and NOW and money market accounts that are acquired in a business combination. The fair value of the CDI stemming from any given business combination is based on the present value of the expected cost savings attributable to the core deposit funding, relative to an alternative source of funding. The CDI that relates to the AmTrust and Desert Hills acquisitions will be amortized over an estimated useful life of seven years to approximate the existing deposit relationships acquired. The Company evaluates such identifiable intangibles for impairment when an indication of impairment exists.

 

10


Table of Contents

NEW YORK COMMUNITY BANCORP, INC.

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

 

Deposit Liabilities

The fair values of deposit liabilities with no stated maturity (i.e., NOW and money market accounts, savings accounts, and non-interest-bearing accounts) are equal to the carrying amounts payable on demand. The fair values of certificates of deposit (“CDs”) represent contractual cash flows, discounted using interest rates currently offered on deposits with similar characteristics and remaining maturities.

Borrowed Funds

The estimated fair value of borrowed funds is based 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.

Note 3. Stock-Based Compensation

At September 30, 2010, the Company had 4,605,858 shares available for grant as options, restricted stock, or other forms of related rights under the New York Community Bancorp, Inc. 2006 Stock Incentive Plan (the “2006 Stock Incentive Plan”). Under the 2006 Stock Incentive Plan, the Company granted 463,000 shares of restricted stock in the nine months ended September 30, 2010, with an average fair value of $16.29 per share on the date of grant and a vesting period of five years. The nine-month amount includes 38,500 shares that were granted in the third quarter with an average fair value of $16.09 per share on the date of grant. Compensation and benefits expense related to restricted stock grants is recognized on a straight-line basis over the vesting period, and totaled $2.6 million and $2.3 million, respectively, in the three months ended September 30, 2010 and 2009, and $8.3 million and $7.1 million, respectively, in the nine months ended at those dates.

A summary of activity with regard to restricted stock awards during the nine months ended September 30, 2010 is presented in the following table:

 

     For the Nine Months Ended
September 30, 2010
 
     Number of Shares     Weighted Average
Grant Date
Fair Value
 

Unvested at January 1, 2010

     3,000,824      $ 13.95   

Granted

     463,000        16.29   

Vested

     (451,600     15.93   

Forfeited

     (15,800     13.35   
          

Unvested at September 30, 2010

     2,996,424        14.02   
          

As of September 30, 2010, unrecognized compensation costs relating to unvested restricted stock totaled $35.3 million. This amount will be recognized over a remaining weighted average period of 3.6 years.

In addition, the Company had ten stock option plans at September 30, 2010: the 1993 and 1997 New York Community Bancorp, Inc. Stock Option Plans; the 1993 and 1996 Haven Bancorp, Inc. Stock Option Plans; the 1998 Richmond County Financial Corp. Stock Compensation Plan; the Roslyn Bancorp, Inc. 1997 and 2001 Stock-based Incentive Plans; the 1998 Long Island Financial Corp. Stock Option Plan; and the 2003 and 2004 Synergy Financial Group, Inc. Stock Option Plans (all ten plans collectively referred to as the “Stock Option Plans”). All stock options granted under the Stock Option Plans expire ten years from the date of grant.

The Company recognizes compensation costs related to share-based payments at fair value on the date of grant, and recognizes such costs in the financial statements over the vesting period during which the employee provides service in exchange for the award. However, as there were no unvested options at any time during the nine months ended September 30, 2010 or the year ended December 31, 2009, the Company did not record any compensation and benefits expense relating to stock options during these periods.

Generally, the Company issues new shares of common stock to satisfy the exercise of options. The Company may also use common stock held in Treasury to satisfy the exercise of options. In such event, the difference between the average cost of Treasury shares and the exercise price is recorded as an adjustment to retained earnings

 

11


Table of Contents

NEW YORK COMMUNITY BANCORP, INC.

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

or paid-in capital on the date of exercise. At September 30, 2010, there were 12,634,854 stock options outstanding. The number of shares available for future issuance under the Stock Option Plans was 11,151 at September 30, 2010.

The status of the Company’s Stock Option Plans at September 30, 2010 and the changes that occurred during the nine months ended at that date are summarized in the following table:

 

     For the Nine Months Ended
September 30, 2010
 
     Number of Stock
Options
    Weighted Average
Exercise Price
 

Stock options outstanding and exercisable at January 1, 2010

     13,037,564      $ 15.56   

Exercised

     (385,580     11.25   

Forfeited/expired

     (17,130     12.54   
          

Stock options outstanding and exercisable at September 30, 2010

     12,634,854        15.70   
          

Total stock options outstanding and exercisable at September 30, 2010 had a weighted average remaining contractual life of 1.59 years, a weighted average exercise price of $15.70 per share, and an aggregate intrinsic value of $15.4 million. The intrinsic value of options exercised during the nine months ended September 30, 2010 was $2.0 million. The intrinsic value of options exercised in the year-earlier nine-month period was nominal.

Note 4. Securities

The following table summarizes the Company’s portfolio of securities available for sale at September 30, 2010:

 

     September 30, 2010  
(in thousands)    Amortized
Cost
     Gross
Unrealized
Gain
     Gross
Unrealized
Loss
     Fair Value  

Mortgage-Related Securities:

           

GSE(1) certificates

   $ 213,479       $ 8,639       $ 78       $ 222,040   

GSE CMOs(2)

     244,866         9,988         —           254,854   

Private label CMOs

     66,442         254         661         66,035   
                                   

Total mortgage-related securities

   $ 524,787       $ 18,881       $ 739       $ 542,929   
                                   

Other Securities:

           

U.S. Treasury obligations

   $ 58,239       $ 963       $ —         $ 59,202   

GSE debentures

     620         6         —           626   

Corporate bonds

     5,809         4         838         4,975   

State, county, and municipal

     1,427         90         —           1,517   

Capital trust notes

     38,843         26,065         5,707         59,201   

Preferred stock

     30,574         1,980         11,964         20,590   

Common stock

     43,880         2,213         6,968         39,125   
                                   

Total other securities

   $ 179,392       $ 31,321       $ 25,477       $ 185,236   
                                   

Total securities available for sale(3)

   $ 704,179       $ 50,202       $ 26,216       $ 728,165   
                                   

 

(1) Government-sponsored enterprises
(2) Collateralized mortgage obligations
(3) As of September 30, 2010, the non-credit portion of OTTI recorded in accumulated other comprehensive loss, net of tax (“AOCL”) was $12.5 million (before taxes).

As of September 30, 2010, the amortized cost of marketable equity securities included perpetual preferred stock of $30.6 million and common stock of $43.9 million. Perpetual preferred stock consisted of investments in two financial institutions: one of the largest banking and financial services organizations in the world and a Florida-based diversified financial services firm that provides a variety of banking, wealth management, and outsourced business processing services to high-net worth clients and premier financial institutions. Common stock primarily consisted of an investment in a large cap equity fund and certain other funds that are Community Reinvestment Act (“CRA”) eligible.

 

12


Table of Contents

NEW YORK COMMUNITY BANCORP, INC.

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

 

The following table summarizes the Company’s portfolio of securities available for sale at December 31, 2009:

 

     December 31, 2009  
(in thousands)    Amortized
Cost
     Gross
Unrealized
Gain
     Gross
Unrealized
Loss
     Fair Value  

Mortgage-Related Securities:

           

GSE certificates

   $ 264,769       $ 7,741       $ 702       $ 271,808   

GSE CMOs

     400,770         16,013         —           416,783   

Private label CMOs

     91,612         —           5,998         85,614   
                                   

Total mortgage-related securities

   $ 757,151       $ 23,754       $ 6,700       $ 774,205   
                                   

Other Securities:

           

U.S. Treasury obligations

   $ 607,022       $ 21       $ 592       $ 606,451   

GSE debentures

     30,179         11         —           30,190   

Corporate bonds

     5,811         9         919         4,901   

State, county, and municipal

     6,402         38         281         6,159   

Capital trust notes

     39,151         5,125         5,438         38,838   

Preferred stock

     31,400         1,117         11,283         21,234   

Common stock

     42,693         1,606         7,631         36,668   
                                   

Total other securities

   $ 762,658       $ 7,927       $ 26,144       $ 744,441   
                                   

Total securities available for sale

   $ 1,519,809       $ 31,681       $ 32,844       $ 1,518,646   
                                   

The following tables summarize the Company’s portfolio of securities held to maturity at September 30, 2010 and December 31, 2009:

 

     September 30, 2010  
(in thousands)    Amortized
Cost
     Carrying
Amount(1)
     Gross
Unrealized
Gain
     Gross
Unrealized
Loss
     Fair Value  

Mortgage-Related Securities:

              

GSE certificates

   $ 199,642       $ 199,642       $ 15,087       $ 122       $ 214,607   

GSE CMOs

     2,934,939         2,934,939         92,053         —           3,026,992   

Other mortgage-related securities

     6,698         6,698         —           —           6,698   
                                            

Total mortgage-related securities

   $ 3,141,279       $ 3,141,279       $ 107,140       $ 122       $ 3,248,297   
                                            

Other Securities:

              

GSE debentures

   $ 608,622       $ 608,622       $ 8,306       $ —         $ 616,928   

Corporate bonds

     91,763         91,763         9,018         —           100,781   

Capital trust notes

     178,045         156,130         7,980         23,703         140,407   
                                            

Total other securities

   $ 878,430       $ 856,515       $ 25,304       $ 23,703       $ 858,116   
                                            

Total securities held to maturity

   $ 4,019,709       $ 3,997,794       $ 132,444       $ 23,825       $ 4,106,413   
                                            

 

(1) Held-to-maturity securities are reported at a carrying amount equal to amortized cost less the non-credit portion of OTTI recorded in AOCL. At September 30, 2010, the non-credit portion recorded in AOCL was $21.9 million (before taxes).

 

13


Table of Contents

NEW YORK COMMUNITY BANCORP, INC.

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

 

     December 31, 2009  
(in thousands)    Amortized
Cost
     Carrying
Amount
     Gross
Unrealized
Gain
     Gross
Unrealized
Loss
     Fair Value  

Mortgage-Related Securities:

              

GSE certificates

   $ 234,290       $ 234,290       $ 16,031       $ —         $ 250,321   

GSE CMOs

     2,224,873         2,224,873         75,948         6,327         2,294,494   

Other mortgage-related securities

     6,793         6,793         —           —           6,793   
                                            

Total mortgage-related securities

   $ 2,465,956       $ 2,465,956       $ 91,979       $ 6,327       $ 2,551,608   
                                            

Other Securities:

              

GSE debentures

   $ 1,489,488       $ 1,489,488       $ 564       $ 24,505       $ 1,465,547   

Corporate bonds

     101,084         101,084         4,363         1,578         103,869   

Capital trust notes

     176,784         167,069         2,054         40,485         128,638   
                                            

Total other securities

   $ 1,767,356       $ 1,757,641       $ 6,981       $ 66,568       $ 1,698,054   
                                            

Total securities held to maturity

   $ 4,233,312       $ 4,223,597       $ 98,960       $ 72,895       $ 4,249,662   
                                            

Included in the $199.6 million market value of the capital trust note portfolio held at September 30, 2010 are three pooled trust preferred securities. The table below details the pooled trust preferred securities that have at least one credit rating below investment grade as of September 30, 2010:

 

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

Book value

   $ 14,964      $ 553      $ 625   

Fair value

     21,039        1,014        1,367   

Unrealized gain

     6,076        462        741   

Lowest credit rating assigned to security

     B        CC        CC   

Number of banks currently performing

     26        63        23   

Actual deferrals and defaults as a percentage of original collateral

     6     28     36

Expected deferrals and defaults as a percentage of remaining performing collateral

     25        27        0   

Expected recoveries as a percentage of remaining performing collateral

     0        0        10   

Excess subordination as a percentage of remaining performing collateral

     8        0        0   

As of September 30, 2010, after taking into account our best estimates of future deferrals, defaults, and recoveries, two of our pooled trust preferred securities had no excess subordination in the classes we own and one had excess subordination of 8%. Excess subordination is calculated after taking into account the deferrals, defaults, and recoveries noted in the table above, and indicates whether there is sufficient additional collateral to cover the outstanding principal balance of the class we own, after taking into account these projected deferrals, defaults, and recoveries.

 

14


Table of Contents

NEW YORK COMMUNITY BANCORP, INC.

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

 

The following table presents a roll-forward of the credit loss component of OTTI on debt securities for which a non-credit component of OTTI was recognized in AOCL. The beginning balance represents the credit loss component for debt securities for which OTTI occurred prior to January 1, 2010. OTTI recognized in earnings after that date for credit-impaired debt securities 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). Changes in the credit loss component of credit-impaired debt securities were as follows:

 

         For the Nine Months Ended
September 30, 2010
 
(in thousands)       

Beginning credit loss amount as of December 31, 2009

   $ 199,883   

Add:

 

Initial other-than-temporary credit losses

     1,157   
 

Subsequent other-than-temporary credit losses

     814   

Less:

 

Realized losses for securities sold

     —     
 

Securities intended or required to be sold

     —     
 

Increases in expected cash flows on debt securities

     —     
          

Ending credit loss amount as of September 30, 2010

   $ 201,854   
          

OTTI losses on securities totaled $26.5 million in the nine months ended September 30, 2010 and consisted of $12.8 million relating to preferred stock and $13.7 million relating to trust preferred securities. The OTTI losses that were related to credit were recognized in earnings and totaled $2.0 million during 2010, as determined through a present-value analysis of expected cash flows on the securities. The significant inputs that the Company used to determine these expected cash flows were the anticipated magnitude and timing of interest payment deferrals, if any, and the underlying creditworthiness of the individual issuers whose debt acts as collateral for these trust preferred securities. The discount rate used to estimate the fair value was determined by considering the weighted average of certain market credit spreads, as well as credit spreads interpolated using other market factors. The discount rate used in determining the credit portion of OTTI, if any, is the yield on the position at the time of purchase.

 

15


Table of Contents

NEW YORK COMMUNITY BANCORP, INC.

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

 

The following table presents held-to-maturity and available-for-sale securities having a continuous unrealized loss position for less than twelve months or for twelve months or longer as of September 30, 2010:

 

At September 30, 2010    Less than Twelve Months      Twelve Months or Longer      Total  
(in thousands)    Fair Value      Unrealized Loss      Fair Value      Unrealized Loss      Fair Value      Unrealized Loss  

Temporarily Impaired Held-to-Maturity Debt Securities:

                 

GSE certificates

   $ 27,842       $ 122       $ —         $ —         $ 27,842       $ 122   

Capital trust notes

     1,570         9         72,328         23,694         73,898         23,703   
                                                     

Total temporarily impaired held-to-maturity debt securities

   $ 29,412       $ 131       $ 72,328       $ 23,694       $ 101,740       $ 23,825   
                                                     

Temporarily Impaired Available-for-Sale Securities:

                 

Debt Securities:

                 

GSE certificates

   $ 10,406       $ 78       $ —         $ —         $ 10,406       $ 78   

Private label CMOs

     —           —           40,385         661         40,385         661   

Corporate bonds

     —           —           3,966         838         3,966         838   

Capital trust notes

     6,013         104         8,531         5,603         14,544         5,707   
                                                     

Total temporarily impaired available-for-sale debt securities

   $ 16,419       $ 182       $ 52,882       $ 7,102       $ 69,301       $ 7,284   

Equity Securities

     40         11         23,860         18,921         23,900         18,932   
                                                     

Total temporarily impaired available-for-sale securities

   $ 16,459       $ 193       $ 76,742       $ 26,023       $ 93,201       $ 26,216   
                                                     

The twelve months or longer unrealized losses of $18.9 million relating to available-for-sale equity securities primarily consisted of two security positions. The first is a perpetual preferred stock of a Florida-based diversified financial services firm, which was evaluated under the debt model described on page 119 of the Company’s 2009 Annual Report on Form 10-K; and the second was a large cap equity fund. The respective twelve months or longer unrealized losses on the preferred stock and the large cap equity fund were $12.0 million and $6.1 million, respectively.

 

16


Table of Contents

NEW YORK COMMUNITY BANCORP, INC.

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

 

The following table presents held-to-maturity and available-for-sale securities having a continuous unrealized loss position for less than twelve months or for twelve months or longer as of December 31, 2009:

 

At December 31, 2009    Less than Twelve Months      Twelve Months or Longer      Total  
(in thousands)    Fair Value      Unrealized Loss      Fair Value      Unrealized Loss      Fair Value      Unrealized Loss  

Temporarily Impaired Held-to-Maturity Debt Securities:

                 

GSE debentures

   $ 1,403,687       $ 24,505       $ —         $ —         $ 1,403,687       $ 24,505   

GSE CMOs

     59,147         1,115         102,067         5,212         161,214         6,327   

Corporate bonds

     27,710         1,256         14,317         322         42,027         1,578   

Capital trust notes

     34,830         429         71,016         40,056         105,846         40,485   
                                                     

Total temporarily impaired held-to-maturity debt securities

   $ 1,525,374       $ 27,305       $ 187,400       $ 45,590       $ 1,712,774       $ 72,895   
                                                     

Temporarily Impaired Available-for-Sale Securities:

                 

Debt Securities:

                 

U.S. Treasury obligations

   $ 185,928       $ 592       $ —         $ —         $ 185,928       $ 592   

GSE certificates

     81,981         702         —           —           81,981         702   

Private label CMOs

     43,849         5,452         41,765         546         85,614         5,998   

Corporate bonds

     —           —           3,855         919         3,855         919   

State, county, and municipal

     524         22         4,723         259         5,247         281   

Capital trust notes

     3,983         44         9,224         5,394         13,207         5,438   
                                                     

Total temporarily impaired available-for-sale debt securities

   $ 316,265       $ 6,812       $ 59,567       $ 7,118       $ 375,832       $ 13,930   

Equity Securities

     —           —           30,498         18,914         30,498         18,914   
                                                     

Total temporarily impaired available-for-sale securities

   $ 316,265       $ 6,812       $ 90,065       $ 26,032       $ 406,330       $ 32,844   
                                                     

 

17


Table of Contents

NEW YORK COMMUNITY BANCORP, INC.

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

 

In April 2009, the Financial Accounting Standards Board (the “FASB”) amended the OTTI accounting model for debt securities. The OTTI accounting model for equity securities was not affected. Under this guidance, an OTTI loss on impaired securities must be fully recognized in earnings if an investor has the intent to sell the debt security or if it is more likely than not that the investor will be required to sell the debt security before recovery of its amortized cost. However, even if an investor does not expect to sell a debt security, it must evaluate the expected cash flows to be received and determine if a credit loss has occurred. In the event that a credit loss has occurred, only the amount of impairment associated with the credit loss is recognized in earnings. Amounts relating to factors other than credit losses are recorded in AOCL. The guidance also requires additional disclosures regarding the calculation of credit losses as well as factors considered by the investor in reaching a conclusion that an investment is not other-than-temporarily impaired. The Company adopted this guidance effective April 1, 2009 and recorded a $967,000 pre-tax transition adjustment for the non-credit portion of the OTTI on securities held at April 1, 2009 that were previously considered other-than-temporarily impaired.

Available-for-sale securities in unrealized loss positions are analyzed as part of the Company’s ongoing assessment of OTTI. When the Company intends to sell such available-for-sale securities, the Company recognizes an impairment loss equal to the full difference between the amortized cost basis and the fair value of those securities. When the Company does not intend to sell available-for-sale equity or debt securities in an unrealized loss position, potential OTTI is considered based on a variety of factors, including the length of time and extent to which the fair value has been less than cost; adverse conditions specifically related to the industry, the geographic area, or financial condition of the issuer, or the underlying collateral of a security; the payment structure of the security; changes to the rating of the security by a rating agency; the volatility of the fair value changes; and changes in fair value of the security after the balance sheet date. For debt securities, the Company estimates cash flows over the remaining lives of the underlying collateral to assess whether credit losses exist and, where applicable, to determine if any adverse changes in cash flows have occurred. The Company’s cash flow estimates take into account expectations of relevant market and economic data as of the end of the reporting period. As of September 30, 2010, the Company did not intend to sell the securities with an unrealized loss position in AOCL, and it was more likely than not that the Company would not be required to sell these securities before recovery of their amortized cost basis. The Company believes that the securities with an unrealized loss in AOCL were not other-than-temporarily impaired as of September 30, 2010.

Other factors considered in determining whether a loss is temporary include the length of time and the extent to which fair value has been below cost; the severity of the impairment; the cause of the impairment; the financial condition and near-term prospects of the issuer; activity in the market of the issuer that may indicate adverse credit conditions; and the forecasted recovery period using current estimates of volatility in market interest rates (including liquidity and risk premiums).

Management’s assertion regarding its intent not to sell, or that it is not more likely than not that the Company will be required to sell the security before its anticipated recovery, considers a number of factors, including a quantitative estimate of the expected recovery period (which may extend to maturity) and management’s intended strategy with respect to the identified security or portfolio. If management does have the intent to sell, or believes it is more likely than not that the Company will be required to sell the security before its anticipated recovery, the unrealized loss is charged directly to earnings in the Consolidated Statement of Income and Comprehensive Income.

The unrealized losses on the Company’s GSE debentures and GSE CMOs at September 30, 2010 were primarily caused by movements in market interest rates and spread volatility, rather than credit risk. The Company purchased these investments either at par or at a discount relative to their face amount, and the contractual cash flows of these investments are guaranteed by the GSEs. Accordingly, it is expected that these securities would not be settled at a price that is less than the amortized cost of the Company’s investment. Because the Company does not have the intent to sell the investments and it is not more likely than not that the Company will be required to sell the investments before anticipated recovery of fair value, which may be at maturity, the Company did not consider these investments to be other-than-temporarily impaired at September 30, 2010.

The Company reviews quarterly financial information related to its investments in capital securities as well as other information that is released by each financial institution to determine the continued creditworthiness of the securities it issued. The contractual terms of these investments do not permit settling the securities at prices that are

 

18


Table of Contents

NEW YORK COMMUNITY BANCORP, INC.

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

less than the amortized costs of the investments; therefore, the Company expects that these investments would not be settled at prices that are less than their amortized costs. The Company continues to monitor these investments and currently estimates that the present value of expected cash flows is not less than the amortized cost of the securities. Because the Company does not have the intent to sell the investments and it is not more likely than not that the Company will be required to sell the investments before anticipated recovery of fair value, which may be at maturity, it did not consider these investments to be other-than-temporarily impaired at September 30, 2010. It is possible that these securities will perform worse than is currently expected, which could lead to adverse changes in cash flows on these securities and potential OTTI losses in the future. Events that may occur in the future at the financial institutions that issued these securities could trigger material unrecoverable declines in fair values for the Company’s investments and therefore could result in future potential OTTI losses. Such events include, but are not limited to, government intervention, deteriorating asset quality and credit metrics, significantly higher levels of default and loan loss provisions, losses in value on the underlying collateral, deteriorating credit enhancement, net operating losses, and further illiquidity in the financial markets.

The unrealized losses on the Company’s private label CMOs at September 30, 2010 were primarily attributable to market interest rate volatility and a significant widening of interest rate spreads from the acquisition dates across market sectors relating to the continued illiquidity and uncertainty in the financial markets, rather than to credit risk. Current characteristics of each security owned, such as delinquency and foreclosure levels, credit enhancement, and projected losses and coverage, are reviewed periodically by management. Accordingly, it is expected that the securities would not be settled at a price less than the amortized cost of the Company’s investment. Because the Company does not have the intent to sell the investments and it is not more likely than not that the Company will be required to sell the investments before anticipated recovery of fair value, which may be at maturity, the Company did not consider these investments to be other than temporarily impaired at September 30, 2010. It is possible that the underlying loan collateral of these securities will perform worse than is currently expected, which could lead to adverse changes in cash flows on these securities and future OTTI losses. Events that could trigger material unrecoverable declines in fair values, and therefore potential OTTI losses for these securities in the future, include, but are not limited to, deterioration of credit metrics, significantly higher levels of default, loss in value on the underlying collateral, deteriorating credit enhancement, and further illiquidity in the financial markets.

At September 30, 2010, the Company’s equity securities portfolio consisted of perpetual preferred and common stock, and mutual funds. The Company considers a decline in fair value of available-for-sale equity securities to be other than temporary if the Company does not expect to recover the entire amortized cost basis of the security. In analyzing its investments in perpetual preferred stock for OTTI, the Company uses an impairment model that is applied to debt securities, consistent with guidance provided by the SEC, provided that there has been no evidence of deterioration in the creditworthiness of the issuer. The unrealized losses on the Company’s equity securities were primarily caused by market volatility. In addition, perpetual preferred stock was impacted by widening interest rate spreads across market sectors related to the continued illiquidity and uncertainty in the marketplace. The Company evaluated the near-term prospects of a recovery of fair value for each security in the portfolio, together with the severity and duration of impairment to date. Based on this evaluation, and the Company’s ability and intent to hold these investments for a reasonable period of time sufficient to realize a near-term forecasted recovery of fair value, the Company did not consider these investments to be other than temporarily impaired at September 30, 2010. Nonetheless, it is possible that these equity securities will perform worse than is currently expected, which could lead to adverse changes in their fair values or the failure of the securities to fully recover in value as presently forecasted by management, causing the Company to record OTTI losses in future periods. Events that could trigger material declines in the fair values of these securities include, but are not limited to, deterioration in the equity markets; a decline in the quality of the loan portfolios of the issuers in which the Company has invested; and the recording of higher loan loss provisions and net operating losses by such issuers.

 

19


Table of Contents

NEW YORK COMMUNITY BANCORP, INC.

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

 

The following tables summarize the carrying amounts and estimated fair values of held-to-maturity debt securities and the amortized cost and estimated fair values of available-for-sale debt securities at September 30, 2010 by contractual maturity. Mortgage-related securities held to maturity and available for sale, all of which have prepayment provisions, are distributed to a maturity category based on the end of the estimated average life of such securities. Principal and amortization prepayments are not shown in maturity categories as they occur, but are considered in the determination of estimated average life.

 

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

Held-to-Maturity Debt Securities:

                 

Due within one year

  $ —          —     $ —          —     $ —          —     $ —          —     $ —     

Due from one to five years

    —          —          —          —          —          —          32,750        6.34        33,868   

Due from five to ten years

    8,811        6.14        558,622        3.73        —          —          23,026        5.20        602,222   

Due after ten years

    3,132,468        4.02        50,000        4.00        —          —          192,117        7.45        3,470,323   
                                                                       

Total debt securities held to maturity

  $ 3,141,279        4.02   $ 608,622        3.75   $ —          —     $ 247,893        7.10   $ 4,106,413   
                                                                       
    Amortized Cost     Fair Value  
(dollars in thousands)   Mortgage-
Related
Securities
    Average
Yield
    U.S. Treasury
and GSE
Obligations
    Average
Yield
    State, County,
and Municipal
    Average
Yield(1)
    Other  Debt
Securities(2)
    Average
Yield
   

Available-for-Sale Debt Securities:(3)

                 

Due within one year

  $ 175        8.58   $ —          —     $ 125        5.12   $ 1,005        5.60   $ 1,313   

Due from one to five years

    900        5.20        58,239        1.19        493        5.75        4,804        4.13        64,645   

Due from five to ten years

    12,993        6.86        —          —          674        6.48        —          —          14,097   

Due after ten years

    510,719        4.66        620        5.26        135        6.66        38,843        5.00        588,395   
                                                                       

Total debt securities available for sale

  $ 524,787        4.72   $ 58,859        1.24   $ 1,427        6.13   $ 44,652        4.92   $ 668,450   
                                                                       

 

(1) Not presented on a tax-equivalent basis.
(2) Includes corporate bonds and capital trust notes. Included in capital trust notes are $15.5 million and $625,000 of pooled trust preferred securities available for sale and held to maturity, respectively, all of which are due after ten years. The remaining capital trust notes consist of single-issue trust preferred securities.
(3) As equity securities have no contractual maturity, they have been excluded from this table.

 

20


Table of Contents

NEW YORK COMMUNITY BANCORP, INC.

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

 

Note 5. Loans, net

The following table provides a summary of the Company’s loan portfolio at the dates indicated:

 

     September 30, 2010     December 31, 2009  
(dollars in thousands)    Amount     Percent of
Non-Covered
Loans
    Amount     Percent of
Non-Covered
Loans
 

Non-Covered Loans:

        

Mortgage Loans:

        

Multi-family

   $ 16,808,512        67.29   $ 16,737,721        71.59

Commercial real estate

     5,284,994        21.16        4,988,649        21.34   

Acquisition, development, and construction

     607,679        2.43        666,440        2.85   

One- to four-family

     180,211        0.72        216,078        0.92   

Loans held for sale

     1,368,889        5.48        —          —     
                                

Total Mortgage Loans

   $ 24,250,285        97.08      $ 22,608,888        96.70   
                                

Other Loans:

        

Commercial and industrial

     635,797        2.55        653,159        2.79   

Other

     93,655        0.37        118,445        0.51   
                                

Total Other Loans

     729,452        2.92        771,604        3.30   
                                

Total non-covered loans

     24,979,737        100.00   $ 23,380,492        100.00
                    

Net deferred loan origination fees

     (6,296       (3,893  

Allowance for loan losses

     (155,866       (127,491  
                    

Total Non-Covered Loans, Net

     24,817,575          23,249,108     

Total Covered Loans

     4,473,718          5,016,100     
                    

Loans, net

   $ 29,291,293        $ 28,265,208     
                    

Covered loans refer to the loans acquired from the FDIC in the AmTrust and Desert Hills acquisitions, all of which are subject to the previously mentioned loss sharing agreements. At December 31, 2009, the balance of covered loans included loans held for sale of $351.3 million. Non-covered loans refer to all loans in the Company’s loan portfolio excluding covered loans.

Non-Covered Loans

Loans Originated for Portfolio

The vast majority of the loans the Company originates for portfolio are multi-family loans. Within this niche, the Company’s primary focus is loans collateralized by non-luxury apartment buildings in New York City that feature below-market rents.

The Company also originates the following types of loans for portfolio: commercial real estate (“CRE”) loans, primarily in New York City, Long Island, and New Jersey; and, to a lesser extent, acquisition, development, and construction (“ADC”) loans and commercial and industrial (“C&I”) loans. ADC loans are primarily originated for multi-family and residential tract projects in New York City and Long Island, while C&I loans are made to small and mid-size businesses in New York City, Long Island, New Jersey, and Arizona on both a secured and unsecured basis for working capital, business expansion, and the purchase of machinery and equipment.

Payments on multi-family and CRE loans generally depend on the income produced by the underlying properties which, in turn, depends on their successful operation and management. Accordingly, the ability of the Company’s borrowers to repay these loans may be impacted by adverse conditions in the local real estate market and the local economy. While the Company generally requires that such loans be qualified on the basis of the collateral property’s current cash flows, appraised value, and debt service coverage ratio, among other factors, there can be no assurance that its underwriting policies will protect the Company from credit-related losses or delinquencies.

ADC loans typically involve a higher degree of credit risk than financing on improved, owner-occupied real estate. The risk of loss on an ADC loan is largely dependent upon the accuracy of the initial appraisal of the

 

21


Table of Contents

NEW YORK COMMUNITY BANCORP, INC.

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

property’s value upon completion of construction or development; the estimated cost of construction, including interest; and the estimated time to complete and/or sell or lease such property. The Company seeks to minimize these risks by maintaining consistent lending policies and rigorous underwriting standards. However, if the estimate of value proves to be inaccurate, the cost of completion is greater than expected, the length of time to complete and/or sell or lease the collateral property is greater than anticipated, or if there is a downturn in the local economy or real estate market, the property could have a value upon completion that is insufficient to assure full repayment of the loan. This would have a material adverse effect on the quality of the ADC loan portfolio, and result in significant losses or delinquencies.

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

Since 2008, the markets served by the Company have been impacted by widespread economic decline and rising unemployment, which have contributed to a rise in charge-offs and non-performing assets. The ability of the Company’s borrowers to repay their loans, and the value of the collateral securing such loans, could be further adversely impacted by continued or more significant economic weakness in its local markets as a result of increased unemployment, declining real estate values, or increased residential and office vacancies. This not only could result in the Company experiencing a further increase in charge-offs and/or non-performing assets, but also could necessitate an increase in the provision for loan losses. These events, if they were to occur, would have an adverse impact on the Company’s results of operations and its capital.

One- to Four-Family Loans Originated for Sale

The origination of one- to four-family loans occurs on two distinctly different platforms. Since December 1, 2000, the Company has originated such loans as a customer service in its local markets through a third-party conduit. The loans have been originated at its branches and on its web sites, and have been sold to the third-party conduit shortly after closing, servicing released.

In connection with the AmTrust acquisition, the Company acquired its mortgage banking operation, which aggregates agency-conforming one- to four-family loans on a nationwide platform and sells these loans to GSEs.

Asset Quality

At September 30, 2010 and December 31, 2009, the Company had $659.9 million and $578.1 million, respectively, of non-accrual non-covered loans. In addition, at September 30, 2010, the Company had $169.6 million of covered loans that were 30 to 89 days past due, and covered loans of $311.6 million that were over 90 days past due but considered to be performing due to the application of the yield accretion method under Codification Topic 310-30. Codification Topic 310-30 allows the Company to aggregate credit-impaired loans acquired in the same fiscal quarter into one or more pools, provided that the loans have common risk characteristics. A pool is then accounted for as a single asset with a single composite interest rate and an aggregate expectation of cash flows. Accordingly, loans that may have been classified as non-performing loans by AmTrust or Desert Hills are no longer classified as non-performing because, at the respective dates of acquisition, the Company believed that it would fully collect the new carrying value of these loans. The new carrying value represents the contractual balance, reduced by the portion expected to be uncollectible (referred to as the “non-accretable difference”) and by an accretable yield (discount) that is recognized as interest income. It is important to note that management’s judgment is required in reclassifying loans subject to Codification Topic 310-30 as performing loans, and is dependent on having a reasonable expectation about the timing and amount of the cash flows to be collected, even if the loan is contractually past due.

 

22


Table of Contents

NEW YORK COMMUNITY BANCORP, INC.

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

 

The following table presents information regarding the Company’s non-performing loans at September 30, 2010 and December 31, 2009, excluding covered loans:

 

(in thousands)    September 30,
2010
     December 31,
2009
 

Non-Performing Loans:

     

Non-accrual mortgage loans:

     

Multi-family

   $ 357,295       $ 393,113   

Commercial real estate

     162,421         70,618   

Acquisition, development, and construction

     95,286         79,228   

One- to four-family

     18,178         14,171   
                 

Total non-accrual mortgage loans

     633,180         557,130   

Other non-accrual loans

     26,724         20,938   

Loans 90 days or more past due and still accruing interest

     —           —     
                 

Total non-performing loans

   $ 659,904       $ 578,068   
                 

In accordance with GAAP, the Company is required to account for certain loan modifications or restructurings as troubled debt restructurings (“TDRs”). In general, a modification or restructuring of a loan constitutes a TDR if the Company grants a concession to a borrower experiencing financial difficulty. Loans modified in TDRs are placed on non-accrual status until the Company determines that future collection of principal and interest is reasonably assured, which generally requires that the borrower demonstrate performance according to the restructured terms for a period of at least six months. At September 30, 2010, loans modified in TDRs totaled $360.8 million; of this amount, $210.5 million were non-accrual loans and $150.3 million were accruing interest. At December 31, 2009, loans modified in TDRs totaled $184.8 million; of this amount, $167.3 million were non-accrual loans and $17.5 million were accruing interest.

The following table presents additional information regarding the Company’s TDRs as of September 30, 2010:

 

(in thousands)    Accruing      Non-Accrual      Total  

Multi-family

   $ 142,101       $ 127,380       $ 269,481   

Commercial real estate

     8,191         57,818         66,009   

Acquisition, development, and construction

     —           17,666         17,666   

Commercial and industrial

     —           6,086         6,086   

One- to four-family

     —           1,520         1,520   
                          

Total

   $ 150,292       $ 210,470       $ 360,762   
                          

In an effort to proactively deal with delinquent loans, the Company has selectively extended to certain borrowers concessions such as rate reductions, forbearance of arrears, extension of maturity dates, and conversion from amortizing to interest-only payments. As of September 30, 2010, concessions made with respect to rate reductions amounted to $267.5 million; maturity extensions amounted to $57.2 million; and forbearance agreements amounted to $36.1 million.

Most of the Company’s TDRs involve rate reductions and/or forbearance of arrears, which have thus far proven the most successful in enabling selected borrowers to emerge from delinquency and keep their loans current.

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

At September 30, 2010, non-covered loans included $1.4 billion of loans held for sale, the vast majority of which were originated by AmTrust’s mortgage banking operation for sale to GSEs.

 

23


Table of Contents

NEW YORK COMMUNITY BANCORP, INC.

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

 

The following table provides a summary of activity in the allowance for loan losses for the dates indicated:

 

(in thousands)    At or For the
Nine Months Ended
September 30, 2010
    At or For the
Year Ended
December 31, 2009
 

Balance at beginning of period

   $ 127,491      $ 94,368   

Provision for loan losses

     74,000        63,000   

Charge-offs

     (46,266     (29,931

Recoveries

     641        54   
                

Balance at end of period

   $ 155,866      $ 127,491   
                

At September 30, 2010, the Company had $718.2 million of non-covered impaired loans. At September 30, 2010, $13.9 million of the Company’s allowance for loan losses related to non-covered impaired loans of $93.0 million.

The average balance of impaired loans for the three and nine months ended September 30, 2010, was $727.4 million and $674.5 million, respectively. The interest income recorded on these loans, which was not materially different from cash-basis interest income, amounted to $2.0 million and $7.9 million for the respective periods. For the three and nine months ended September 30, 2009, the average balance of impaired loans was $498.9 million and $344.5 million, respectively, and the interest income amounted to $4.6 million and $13.7 million, respectively.

Covered Loans

The following table presents the balance of covered loans acquired in the AmTrust and Desert Hills acquisitions as of September 30, 2010:

 

(dollars in thousands)    Amount      Percent of
Covered Loans
 

Loan Category:

     

One- to four-family

   $ 4,012,721         89.7

All other loans

     460,997         10.3   
                 

Total loans

   $ 4,473,718         100.0
                 

The Company refers to the loans acquired in the AmTrust and Desert Hills acquisitions as “covered loans” because the Company will be reimbursed for a substantial portion of any future losses on these loans under the terms of the FDIC loss sharing agreements. Covered loans are accounted for under Codification Topic 310-30, and initially measured at fair value, which includes estimated future credit losses expected to be incurred over the lives of the loans.

At the acquisition date, we estimated the fair values of the Desert Hills loan portfolio at $196.7 million, which represented the expected cash flows from the portfolio discounted at market-based rates. In estimating such fair value, we (a) calculated the contractual amount and timing of undiscounted principal and interest payments (the “undiscounted contractual cash flows”); and (b) estimated the amount and timing of undiscounted expected principal and interest payments (the “undiscounted expected cash flows”). The amount by which the undiscounted expected cash flows exceed the estimated fair value (the “accretable yield”) is accreted into interest income over the lives of the loans. The difference between the undiscounted contractual cash flows and the undiscounted expected cash flows is referred to as the “non-accretable difference.” The non-accretable difference represents an estimate of the credit risk in the Desert Hills loan portfolio at the acquisition date. On the acquisition date, the estimate of the contractual principal and interest payments for covered loans acquired in the Desert Hills acquisition was $275.4 million. On the acquisition date, the accretable yield was $28.3 million and the non-accretable difference was $50.3 million.

In connection with the Desert Hills acquisition, the Company also acquired $38.6 million of OREO, all of which is covered under an FDIC loss sharing agreement. Covered OREO was initially recorded at its estimated fair value on the acquisition date based on independent appraisals less estimated selling costs. Any subsequent write downs due to declines in fair value will be charged to non-interest expense with a partially offsetting non-interest income item for the loss reimbursement under the FDIC loss sharing agreement. Any recoveries of previous write downs are credited to non-interest expense with a corresponding charge to non-interest income for the portion of the recovery that is due to the FDIC.

 

24


Table of Contents

NEW YORK COMMUNITY BANCORP, INC.

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

 

At September 30, 2010, the combined outstanding balance (representing amounts owed to the Company) of loans acquired in the AmTrust and Desert Hills acquisitions was $5.4 billion. The carrying values of such loans were $4.5 billion and $4.6 billion, respectively at June 30, 2010; the carrying value of loans acquired in the AmTrust transaction was $5.0 billion at December 31, 2009.

Changes in the accretable yield for acquired loans were as follows for the nine months ended September 30, 2010:

 

(in thousands)    Accretable Yield  

Balance at beginning of period(1)

   $ 2,081,765   

Additions

     28,315   

Accretion

     (188,017
        

Balance at end of period

   $ 1,922,063   
        

 

(1) Excludes loans held for sale.

Covered loans under the loss sharing agreements with the FDIC are reported exclusive of the FDIC loss share receivable. The covered loans acquired in the AmTrust and Desert Hills acquisitions are, and will continue to be, reviewed for collectability based on the expectations of cash flows on these loans. As a result, if there is a decrease in expected cash flows due to an increase in estimated credit losses compared to the estimate made at the acquisition date, the decrease in the present value of expected cash flows will be recorded as a provision for covered loan losses charged to earnings, and an allowance for covered loan losses will be established. A related credit to income and an increase in the FDIC loss share receivable will be recognized at the same time, and will be measured based on the loss share percentages described earlier in this report.

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

Under Codification Topic 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.

Note 6. Mortgage Servicing Rights

The Company had mortgage servicing rights (“MSRs”) of $51.3 million and $10.6 million at September 30, 2010 and December 31, 2009, respectively. MSRs are included in “other assets” in the Consolidated Statements of Condition. The Company has two classes of MSRs for which it separately manages economic risk: residential MSRs and securitized MSRs. Residential MSRs are carried at fair value, with changes in fair value recorded as a component of non-interest income in each period. The Company uses various derivative instruments to mitigate the income statement-effect of changes in fair value due to changes in valuation inputs and assumptions of its residential MSRs. MSRs do not trade in an active, open market with readily observable prices. Accordingly, the Company utilizes a valuation model that calculates the present value of estimated future cash flows. The model incorporates various assumptions, including estimates of prepayment speeds, discount rates, refinance rates, servicing costs, and ancillary income. The Company reassesses and periodically adjusts the underlying inputs and assumptions in the model to reflect market conditions and assumptions that a market participant would consider in valuing the MSR asset. The value of MSRs is significantly affected by mortgage interest rates available in the marketplace, which influence mortgage loan prepayment speeds. In general, during periods of declining interest rates, the value of MSRs declines due to increasing prepayments attributable to increased mortgage refinancing activity. Conversely, during periods of rising interest rates, the value of MSRs generally increases due to reduced mortgage refinancing activity.

 

25


Table of Contents

NEW YORK COMMUNITY BANCORP, INC.

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

 

Securitized MSRs are carried at the lower of the initial carrying value, adjusted for amortization, or fair value and are amortized in proportion to, and over the period of, estimated net servicing income. Such MSRs are periodically evaluated for impairment based on the difference between the carrying amount and current fair value. If it is determined that impairment exists, the resultant loss is charged against earnings.

The following table sets forth the changes in residential and securitized MSRs for the nine months ended September 30, 2010 and the year ended December 31, 2009:

 

     For the
Nine Months Ended
September 30, 2010
    For the
Year Ended
December 31, 2009
 
(in thousands)    Residential     Securitized     Residential      Securitized  

Carrying value, beginning of year

   $ 8,617      $ 1,965      $ —         $ 3,568   

Additions

     55,776        —          —           —     

Decrease in fair value

     (14,496     —          —           —     

Amortization

     —          (580     —           (1,603

Additions recorded at fair value in the AmTrust acquisition

     —          —          8,617         —     
                                 

Carrying value, end of period

   $ 49,897      $ 1,385      $ 8,617       $ 1,965   
                                 

Note 7. Borrowed Funds

The following table provides a summary of the Company’s borrowed funds at the dates indicated:

 

(in thousands)    September 30, 2010      December 31, 2009  

Wholesale borrowings:

     

FHLB advances

   $ 8,429,664       $ 8,955,769   

Repurchase agreements

     4,125,000         4,125,000   
                 

Total wholesale borrowings

     12,554,664         13,080,769   
                 

Junior subordinated debentures

     427,079         427,371   

Senior debt

     601,835         601,746   

Preferred stock of subsidiaries

     11,600         54,800   
                 

Total borrowed funds

   $ 13,595,178       $ 14,164,686   
                 

At September 30, 2010, the Company had $427.1 million of outstanding junior subordinated deferrable interest debentures (“junior subordinated debentures”) held by nine statutory business trusts (the “Trusts”) that issued guaranteed capital securities. The capital securities qualified as Tier 1 capital of the Company at that date. 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. However, with the passage of the Dodd-Frank Act in July 2010, the qualification of capital securities as Tier 1 capital is expected to be phased out over a three-year period beginning January 1, 2013 and ending January 1, 2016.

 

26


Table of Contents

NEW YORK COMMUNITY BANCORP, INC.

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

 

The following table provides a summary of the outstanding capital securities issued by each trust and the carrying amounts of the junior subordinated debentures issued by the Company to each trust as of September 30, 2010:

 

Issuer

   Interest Rate of
Capital Securities
and Debentures(1)
    Junior
Subordinated

Debenture
Carrying
Amount
     Capital
Securities
Amount
Outstanding
     Date of
Original Issue
     Stated Maturity      First Optional
Redemption Date
 
           (dollars in thousands)                       

Haven Capital Trust II

     10.250   $ 23,333       $ 22,550         May 26, 1999         June 30, 2029         June 30, 2009(2)   

Queens County Capital Trust I

     11.045        10,309         10,000         July 26, 2000         July 19, 2030         July 19, 2010   

Queens Statutory Trust I

     10.600        15,464         15,000         September 7, 2000         September 7, 2030         September 7, 2010   

New York Community Capital Trust V

     6.000        143,584         137,233         November 4, 2002         November 1, 2051         November 4, 2007(3)   

New York Community Capital Trust X

     1.892        123,712         120,000         December 14, 2006         December 15, 2036         December 15, 2011   

LIF Statutory Trust I

     10.600        7,732         7,500         September 7, 2000         September 7, 2030         September 7, 2010   

PennFed Capital Trust II

     10.180        12,731         12,359         March 28, 2001         June 8, 2031         June 8, 2011   

PennFed Capital Trust III

     3.542        30,928         30,000         June 2, 2003         June 15, 2033         June 15, 2008(2)   

New York Community Capital Trust XI

     1.939        59,286         57,500         April 16, 2007         June 30, 2037         June 30, 2012   
                            
     $ 427,079       $ 412,142            
                            

 

(1) Excludes the effect of purchase accounting adjustments.
(2) Callable at any time subsequent to this date.
(3) Callable subject to certain conditions as described in the prospectus filed with the SEC on November 4, 2002.

Note 8. Pension and Other Post-Retirement Benefits

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

 

     For the Three Months Ended September 30,  
     2010     2009  
(in thousands)    Pension
Benefits
    Post-Retirement
Benefits
    Pension
Benefits
    Post-Retirement
Benefits
 

Components of net periodic (credit) expense:

        

Interest cost

   $ 1,515      $ 198      $ 1,611      $ 228   

Service cost

     —          1        —          1   

Expected return on plan assets

     (2,866     —          (2,576     —     

Unrecognized past service liability

     49        (62     50        (62

Amortization of unrecognized loss

     1,286        78        1,746        75   
                                

Net periodic (credit) expense

   $ (16   $ 215      $ 831      $ 242   
                                
     For the Nine Months Ended September 30,  
     2010     2009  
(in thousands)    Pension
Benefits
    Post-Retirement
Benefits
    Pension
Benefits
    Post-Retirement
Benefits
 

Components of net periodic (credit) expense:

        

Interest cost

   $ 4,543      $ 595      $ 4,832      $ 683   

Service cost

     —          3        —          3   

Expected return on plan assets

     (8,597     —          (7,726     —     

Unrecognized past service liability

     147        (187     152        (187

Amortization of unrecognized loss

     3,858        235        5,237        227   
                                

Net periodic (credit) expense

   $ (49   $ 646      $ 2,495      $ 726   
                                

As discussed in the notes to the consolidated financial statements presented in the Company’s 2009 Annual Report on Form 10-K, the Company expects to contribute $1.7 million to its post-retirement plan to pay premiums and claims for the fiscal year ending December 31, 2010. At December 31, 2009, the Company’s pension plan was overfunded. Accordingly, the Company does not expect to contribute to its pension plan in 2010 period.

 

27


Table of Contents

NEW YORK COMMUNITY BANCORP, INC.

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

 

Note 9. Computation of Earnings per Share

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

 

     Three Months Ended
September 30,
    Nine Months Ended
September 30,
 
(in thousands, except share and per share data)    2010     2009     2010     2009  

Net income

   $ 135,609      $ 98,573      $ 396,016      $ 243,710   

Less: Dividends paid on and earnings allocated to participating securities

     (776     (548     (2,269     (1,419
                                

Earnings applicable to common stock

   $ 134,833      $ 98,025      $ 393,747      $ 242,291   
                                

Weighted average common shares outstanding

     434,375,863        346,176,162        433,519,634        344,359,415   
                                

Basic earnings per common share

   $ 0.31      $ 0.28      $ 0.91      $ 0.70   
                                

Earnings applicable to common stock

   $ 134,833      $ 98,025      $ 393,747      $ 242,291   
                                

Weighted average common shares outstanding

     434,375,863        346,176,162        433,519,634        344,359,415   

Potential dilutive common shares(1)

     468,009        75,027        370,032        76,200   
                                

Total shares for diluted earnings per share computation

     434,843,872        346,251,189        433,889,666        344,435,615   
                                

Diluted earnings per common share and common share equivalents

   $ 0.31      $ 0.28      $ 0.91      $ 0.70   
                                

 

(1) Options to purchase 2,818,863 and 2,824,373 shares, respectively, of the Company’s common stock that were outstanding in the three and nine months ended September 30, 2010, at respective weighted average exercise prices of $19.18 and $19.18, were excluded from the respective computations of diluted earnings per share because their inclusion would have had an antidilutive effect. Options to purchase 12,884,811 shares of the Company’s common stock that were outstanding in the three and nine months ended September 30, 2009, were excluded from the respective computations of diluted earnings per share because their inclusion would have had an antidilutive effect.

Note 10. Fair Value Measurement

The Company carries loans held for sale originated by the mortgage banking unit at fair value, in accordance with applicable accounting guidance (the “Fair Value Option”). In 2008, the FASB issued a standard that, among other things, defined fair value, established a consistent framework for measuring fair value, and expanded disclosure for each major asset and liability category measured at fair value on either a recurring or non-recurring basis. The standard clarified that fair value is an “exit” price, representing the amount that would be received when selling an asset, or paid when transferring a liability, in an orderly transaction between market participants. Fair value is thus a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, the standard established 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.

 

28


Table of Contents

NEW YORK COMMUNITY BANCORP, INC.

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

 

The following tables present assets and liabilities that were measured at fair value on a recurring basis as of September 30, 2010 and December 31, 2009, and that were included in the Company’s Consolidated Statement of Condition at those dates:

 

     Fair Value Measurements at September 30, 2010 Using  
(in thousands)    Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
     Significant
Other
Observable
Inputs
(Level 2)
     Significant
Unobservable
Inputs
(Level 3)
     Netting
Adjustments(1)
     Total
Fair Value
 

Mortgage-Related Securities Available for Sale:

              

GSE certificates

   $ —         $ 222,040       $ —         $ —         $ 222,040   

GSE CMOs

     —           254,854         —           —           254,854   

Private label CMOs

     —           66,035         —           —           66,035   
                                            

Total mortgage-related securities

   $ —         $ 542,929       $ —         $ —         $ 542,929   
                                            

Other Securities Available for Sale:

              

GSE debentures

   $ —         $ 626       $ —         $ —         $ 626   

Corporate bonds

     —           4,975         —           —           4,975   

U. S. Treasury obligations

     59,202         —           —           —           59,202   

State, county, and municipal

     —           1,517         —           —           1,517   

Capital trust notes

     —           35,135         24,066         —           59,201   

Preferred stock

     —           14,430         6,160         —           20,590   

Common stock

     39,125         —           —           —           39,125   
                                            

Total other securities

   $ 98,327       $ 56,683       $ 30,226       $ —         $ 185,236   
                                            

Total securities available for sale

   $ 98,327       $ 599,612       $ 30,226       $ —         $ 728,165   
                                            

Other Assets:

              

Loans held for sale

   $ —         $ 1,363,844       $ —         $ —         $ 1,363,844   

Mortgage servicing rights

     —           —           49,897         —           49,897   

Derivative assets

     5,632         102         27,884         —           33,618   

Liabilities:

              

Derivative liabilities

   $ 2,018       $ 8,805       $ —         $ —         $ 10,823   

 

(1) Amounts represent the impact of legally enforceable master netting agreements that allow the Company to settle positive and negative positions with the same counterparties.

 

29


Table of Contents

NEW YORK COMMUNITY BANCORP, INC.

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

 

     Fair Value Measurements at December 31, 2009 Using  
(in thousands)    Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
     Significant
Other
Observable
Inputs
(Level 2)
     Significant
Unobservable
Inputs
(Level 3)
     Netting
Adjustments(1)
    Total
Fair Value
 

Mortgage-Related Securities Available for Sale:

             

GSE certificates

   $ —         $ 271,808       $ —         $ —        $ 271,808   

GSE CMOs

     —           416,783         —           —          416,783   

Private label CMOs

     —           85,614         —           —          85,614   
                                           

Total mortgage-related securities

   $ —         $ 774,205       $ —         $ —        $ 774,205   
                                           

Other Securities Available for Sale:

             

GSE debentures

   $ —         $ 30,190       $ —         $ —        $ 30,190   

Corporate bonds

     —           4,901         —           —          4,901   

U. S. Treasury obligations

     606,451         —           —           —          606,451   

State, county, and municipal

     —           6,159         —           —          6,159   

Capital trust notes

     —           15,273         23,565         —          38,838   

Preferred stock

     —           13,567         7,667         —          21,234   

Common stock

     36,668         —           —           —          36,668   
                                           

Total other securities

   $ 643,119       $ 70,090       $ 31,232       $ —        $ 744,441   
                                           

Total securities available for sale

   $ 643,119       $ 844,295       $ 31,232       $ —        $ 1,518,646   
                                           

Other Assets:

             

Loans held for sale

   $ —         $ 351,322       $ —         $ —        $ 351,322   

Mortgage servicing rights

     —           —           8,617         —          8,617   

Derivative assets

     48         20,416         32         (2,243     18,253   

Liabilities:

             

Derivative liabilities

   $ 344       $ —         $ —         $ (83   $ 261   

 

(1) Amounts represent the impact of legally enforceable master netting agreements that allow the Company to settle positive and negative positions with the same counterparties.

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

A description of the methods and significant assumptions utilized in estimating the fair value 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 and exchange-traded securities.

If quoted market prices are not available for the 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, 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 securities and corporate debt.

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

In certain cases where there is limited activity or less transparency around inputs to the valuation, securities are classified within Level 3 of the valuation hierarchy. In valuing collateralized debt obligations (“CDOs”) (which include pooled trust preferred securities and income notes) and certain single-issue capital trust notes, both of which are classified within Level 3, the determination of fair value may require benchmarking to similar instruments or analyzing default and recovery rates. Therefore, CDOs and certain single-issue capital trust notes are valued using a

 

30


Table of Contents

NEW YORK COMMUNITY BANCORP, INC.

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

model based on the specific collateral composition and cash flow structure of the securities. Key inputs to the model consist of market spread data for each credit rating, collateral type, and other relevant contractual features. In instances where quoted price information is available, that price is considered when arriving at the security’s fair value. Where there is limited activity or less transparency around the inputs to the valuation of preferred stock, the valuation is based on a discounted cash flow model.

MSRs do not trade in an active open market with readily observable prices. Accordingly, the Company utilizes a valuation model that calculates the present value of estimated future cash flows. The model incorporates various assumptions, including estimates of prepayment speeds, discount rates, refinance rates, servicing costs, and ancillary income. The Company reassesses and periodically adjusts the underlying inputs and assumptions in the model to reflect 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 as Level 3.

For interest rate lock commitments for residential mortgage loans that the Company intends to sell, the fair value is based on internally developed models. The key model inputs primarily include the sum of the value of the forward commitment based on the loans’ expected settlement dates and the projected value of the MSRs, government agency price adjustment factors, and historical interest rate lock commitment fall-out factors. Such derivatives are classified as Level 3.

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

The Company had no transfers in or out of Level 1 or 2 during the nine months ended September 30, 2010.

 

31


Table of Contents

NEW YORK COMMUNITY BANCORP, INC.

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

 

Changes in Level 3 Fair Value Measurements

The following tables include a roll-forward of the balance sheet amounts for the nine months ended September 30, 2010 and 2009 (including the change in fair value) for financial instruments classified in Level 3 of the valuation hierarchy:

 

            Total Realized/Unrealized
Gains/(Losses) Recorded in
     Purchases,
Issuances,
and
Settlements,
Net
                  Change in
Unrealized Gains
and (Losses)

Related to
Instruments Held
at September 30, 2010
 
(in thousands)    Fair Value
January 1,
2010
     Income     Comprehensive
Income
       Transfers
in/out of
Level 3
     Fair Value
at Sept. 30,
2010
    

Available-for-Sale Debt Securities:

                  

Capital securities and preferred stock

   $ 31,232       $ (13,668   $ 12,664       $ (2   $ —         $ 30,226       $ (1,004

Mortgage servicing rights

     8,617         (14,496     —           55,776        —           49,897         (14,496

Derivatives, net

     32         27,852        —           —          —           27,884         27,852   
            Total Realized/Unrealized
Gains/(Losses) Recorded in
     Purchases,
Issuances,
and
Settlements,
Net
                  Change in
Unrealized Gains
and (Losses)

Related to
Instruments Held
at September 30, 2009
 
(in thousands)    Fair Value
January 1,
2009
     Income     Comprehensive
Income
       Transfers
in/out of
Level 3
     Fair Value
at Sept. 30,
2009
    

Available-for-Sale Debt Securities:

                  

Capital securities

   $ 14,590       $ (4,420   $ 9,986       $ 495      $ 9,758       $ 30,409       $ 10,705   

 

32


Table of Contents

NEW YORK COMMUNITY BANCORP, INC.

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

 

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 September 30, 2010 and December 31, 2009, and that were included in the Company’s Consolidated Statements of Condition at those dates:

 

     Fair Value Measurements at September 30, 2010 Using  
(in thousands)    Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
     Significant Other
Observable Inputs
(Level 2)
     Significant
Unobservable Inputs
(Level 3)
     Total Fair
Value
 

Loans held for sale

   $ —         $ 5,045       $ —         $ 5,045   

Certain impaired loans

     —           —           226,141         226,141   
                                   

Total

   $ —         $ 5,045       $ 226,141       $ 231,186   
                                   
     Fair Value Measurements at December 31, 2009 Using  
(in thousands)    Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
     Significant Other
Observable Inputs
(Level 2)
     Significant
Unobservable Inputs
(Level 3)
     Total Fair
Value
 

Loans held for sale

   $ —         $ 4,729       $ —         $ 4,729   

Certain impaired loans

     —           —           139,848         139,848   
                                   

Total

   $ —         $ 4,729       $ 139,848       $ 144,577   
                                   

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

Other Fair Value Disclosures

Certain FASB guidance requires the disclosure of fair value information about the Company’s on- and off-balance-sheet financial instruments. Quoted market prices, when available, 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.

 

33


Table of Contents

NEW YORK COMMUNITY BANCORP, INC.

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

 

The following table summarizes the carrying values and estimated fair values of the Company’s financial instruments at September 30, 2010 and December 31, 2009:

 

     September 30, 2010      December 31, 2009  
(in thousands)    Carrying
Value
     Estimated
Fair Value
     Carrying
Value
     Estimated
Fair Value
 

Financial Assets:

           

Cash and cash equivalents

   $ 2,235,091       $ 2,235,091       $ 2,670,857       $ 2,670,857   

Securities held to maturity

     3,997,794         4,106,413         4,223,597         4,249,662   

Securities available for sale

     728,165         728,165         1,518,646         1,518,646   

FHLB stock

     447,185         447,185         496,742         496,742   

Loans, net

     29,291,293         30,310,107         28,265,208         28,302,882   

Mortgage servicing rights

     51,282         51,282         10,582         10,582   

Derivatives

     33,618         33,618         18,253         18,253   

Financial Liabilities:

           

Deposits

   $ 22,227,391       $ 22,280,386       $ 22,316,411       $ 22,373,559   

Borrowed funds

     13,595,178         15,275,532         14,164,686         15,271,668   

Derivatives

     10,823         10,823         261         261   

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

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 Held to Maturity and Available for Sale

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

FHLB Stock

The fair value of FHLB stock approximates the carrying amount, which is at cost.

Loans

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

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

In addition, these methods of estimating fair value do not incorporate the exit-price concept of fair value described in Codification Topic 820-10, “Fair Value Measurements and Disclosures.”

 

34


Table of Contents

NEW YORK COMMUNITY BANCORP, INC.

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

 

Loans Held for Sale

Fair value is based on independent quoted market prices, where available, and adjusted as necessary for such items as servicing value, guaranty fee premiums, and credit spread adjustments.

Mortgage Servicing Rights (“MSRs”)

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

Derivative Financial Instruments

For exchange-traded futures and exchange-traded options, the fair value is based on observable quoted market prices in an active market. For forward commitments to buy and sell loans and mortgage-backed securities, the fair value is based on observable market prices for similar securities in an active market. For interest rate lock commitments for residential mortgage loans that the Company intends to sell, the fair value 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 interest rate lock commitment fall-out factors.

Deposits

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

Borrowed Funds

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

Off-Balance-Sheet Financial Instruments

The fair values of commitments to extend credit and unadvanced lines of credit are estimated based on an analysis of the interest rates and fees currently charged to enter into similar transactions, considering the remaining terms of the commitments and the creditworthiness of the potential borrowers. The estimated fair values of such off-balance-sheet financial instruments were insignificant at September 30, 2010 and December 31, 2009.

Note 11. Derivative Financial Instruments

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

The Company held derivatives not designated as hedges with a notional amount of $8.2 billion at September 30, 2010. Changes in the fair value of these derivatives are reflected in current-period earnings.

 

35


Table of Contents

NEW YORK COMMUNITY BANCORP, INC.

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

 

The following table sets forth information concerning the Company’s derivative financial instruments (that are designated as hedges) at September 30, 2010:

 

     September 30, 2010  
     Notional
Amount
     Unrealized(1)  
(in thousands)       Gain      Loss  

Treasury options

   $ 460,000       $ 310       $ —     

Eurodollar futures

     1,400,000         —           2,018   

Forward commitments to sell loans/mortgage-backed securities

     3,117,805         —           10,433   

Forward commitments to buy loans/mortgage-backed securities

     535,000         1,730         —     

Interest rate lock commitments

     2,696,134         27,884         —     
                          

Total derivatives

   $ 8,208,939       $ 29,924       $ 12,451   
                          

 

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

The Company uses various financial instruments, including derivatives, in connection with its strategies to reduce price risk resulting from changes in interest rates. Derivative instruments may include interest rate lock commitments entered into with borrowers or correspondents/brokers to acquire conforming fixed and adjustable rate residential mortgage loans that will be held for sale. Other derivative instruments include Treasury options and Eurodollar futures. Gains or losses due to changes in the fair value of derivatives are recognized currently in earnings.

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

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

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

In addition, the Company mitigates a portion of the risk associated with changes in the value of MSRs. The general strategy for hedging the value of servicing assets is to purchase hedge instruments that gain value when interest rates fall, thereby offsetting the corresponding decline in the value of the MSRs. The Company purchases call options on Treasury futures and enters into forward contracts to purchase fixed rate mortgage-backed securities to offset the risk of declines in the value of MSRs.

 

36


Table of Contents

NEW YORK COMMUNITY BANCORP, INC.

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

 

The following table sets forth the effect of derivative instruments on the Consolidated Statements of Income for the nine months ended September 30, 2010 and for the period from December 4, 2009 (the date of the AmTrust acquisition) through December 31, 2009:

 

    Gain (Loss) Included in Mortgage Banking Income  
(in thousands)   For the Nine Months Ended
September 30, 2010
    From December 4, 2009
through December 31, 2009
 

Mortgage Banking:

   

Treasury options

  $ 5,860      $ (77

Eurodollar futures

    (3,110     186   

Forward commitments to buy/sell loans/mortgage-backed securities

    (44,624     16,224   

Other Management Activities:

   

Interest rate swaps

    —          1,221   
               

Total (loss) gain

  $ (41,874   $ 17,554   
               

Note 12. Impact of Recent Accounting Pronouncements

In July 2010, the FASB issued Accounting Standard Update (“ASU”) 2010-20, “Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses.” ASU 2010-20 was issued to improve the disclosures that an entity provides about the credit quality of its financing receivables and the related allowance for credit losses. As a result of these amendments, an entity is required to disaggregate, by portfolio segment or class, certain existing disclosures and provide certain new disclosures about its financing receivables and related allowance for credit losses. The disclosures as of the end of a reporting period are effective for interim and annual reporting periods ending on or after December 15, 2010. The disclosures about activity that occurs during a reporting period are effective for interim and annual reporting periods beginning on or after December 15, 2010. The amendments in ASU 2010-20 encourage, but do not require, comparative disclosures for earlier reporting periods that ended before initial adoption. However, an entity should provide comparative disclosures for those reporting periods ending after initial adoption. The Company’s adoption of ASU 2010-20 is not expected to have a material effect on its consolidated financial statements.

In January 2010, the FASB issued a standard that requires more robust disclosures about (1) the different classes of assets and liabilities measured at fair value, (2) the valuation techniques and inputs used, (3) the activity in Level 3 fair value measurements, and (4) the transfers between Levels 1, 2, and 3. The new disclosures and clarifications of existing disclosures are effective for interim and annual reporting periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances, and settlements in the roll-forward of activity in Level 3 fair value measurements. Those disclosures are effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years.

In July 2009, the FASB released the Codification as the single source of authoritative non-governmental GAAP. The Codification is effective for interim and annual periods ended after September 15, 2009. All previously existing accounting standards documents are superseded. All other accounting literature not included in the Codification is non-authoritative.

Rules and interpretive releases of the SEC under authority of federal securities laws are also sources of authoritative GAAP for SEC registrants. The Codification supersedes all existing non-SEC accounting and reporting standards. All other non-grandfathered, non-SEC accounting literature not included in the Codification has become non-authoritative.

Following the Codification, the FASB will not issue new standards in the form of Statements of Financial Accounting Standards, FASB Staff Positions, Emerging Issues Task Force Abstracts, or other types of pronouncements previously used. Instead, it will issue ASUs, which will serve to update the Codification, provide background information about the guidance, and provide the basis for conclusions on changes to the Codification.

 

37


Table of Contents

NEW YORK COMMUNITY BANCORP, INC.

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

 

GAAP is not intended to be changed as a result of the Codification, but the Codification will change the way that guidance is organized and presented. As a result, these changes will have a significant impact on how companies reference GAAP in their financial statements and in their accounting policies for financial statements issued for interim and annual periods ended after September 15, 2009.

In April 2009, the FASB issued new requirements regarding disclosure of fair value measurements and accounting for the impairment of securities. The requirements address fair value measurements in inactive markets consistent with the principles presented in previously issued standards; increase the frequency of fair value disclosures; and establish new principles with respect to accounting for, and presenting, impairment losses on securities.

These requirements address the determination of fair values when there is no active market or where the price inputs being used represent distressed sales, and reaffirm that the objective of fair value measurement, as set forth in previously issued guidance, is to reflect how much an asset would be sold for in an orderly transaction (the exit price, as opposed to a distressed or forced transaction) at the date of the financial statements and under current market conditions. Furthermore, the FASB specifically reaffirmed the need to use judgment in ascertaining if a formerly active market has become inactive and in determining fair values when markets have become inactive.

Prior to issuing these requirements, fair values for financial instruments held by public companies were disclosed once a year. The new requirements call for quarterly disclosures that provide qualitative and quantitative information about fair value estimates.

New requirements relating to OTTI also were issued by the FASB to bring greater consistency to the timing of impairment recognition, and to provide greater clarity to investors about the credit and non-credit components of impaired debt securities that are not intended or expected to be sold. The measure of impairment in comprehensive income remains fair value. The guidance also requires increased and timelier disclosure regarding expected cash flows, credit losses, and the aging of securities with unrealized losses. In accordance with these requirements, the Company recorded a cumulative-effect adjustment at the adoption date of April 1, 2009 with respect to certain previously recognized OTTI.

The FASB requirements issued in April 2009 were effective for interim and annual periods ending after June 15, 2009 and were adopted by the Company on April 1, 2009. The Company’s adoption of these requirements did not have a material effect on its consolidated financial statements.

In June 2009, the FASB issued a standard that, among other things, affects the accounting for transfers of financial assets, including securitization transactions, and requires more information when companies have continuing exposure to the risks related to transferred financial assets. The standard eliminated the concept of a “qualifying special-purpose entity,” changed the requirements for derecognizing financial assets, and required additional disclosures.

Another standard issued by the FASB in June 2009 changes how a company determines when an entity that is insufficiently capitalized or is not controlled through voting or similar rights should be consolidated. The determination of whether a company is required to consolidate an entity is based on, among other things, an entity’s purpose and design, and a company’s ability to direct the activities of the entity that most significantly impact the entity’s economic performance.

Both of these standards were effective as of the beginning of the first annual reporting period that began after November 15, 2009, for interim periods within that first annual reporting period, and for interim and annual reporting periods thereafter. The adoption of these standards on January 1, 2010, did not have a material impact on the Company’s consolidated financial condition or results of operations.

In June 2009, the FASB also issued a standard regarding subsequent events. This ASU established general standards of accounting for, and disclosing, events that occur after the balance sheet date but before financial statements are issued or are available to be issued. It required the disclosure of the date through which an entity evaluated subsequent events and the basis for that date, i.e., whether that date represented the date the financial statements were issued or were available to be issued. In February 2010, the FASB issued additional guidance regarding the recognition and disclosure requirements for subsequent events. This guidance addresses both the

 

38


Table of Contents

NEW YORK COMMUNITY BANCORP, INC.

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

interaction of the requirements of Codification Topic 855, “Subsequent Events,” with the SEC’s reporting requirements, and the intended breadth of the reissuance disclosures provision related to subsequent events. The amendments in this guidance have the potential to change reporting by both private and public entities; however, the nature of the change may vary depending on facts and circumstances. The Company has determined there are no disclosures required under the February 2010 guidance.

 

39


Table of Contents

 

NEW YORK COMMUNITY BANCORP, INC.

 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

For the purpose of this Quarterly Report on Form 10-Q, the words “we,” “us,” “our,” and the “Company” are used to refer to New York Community Bancorp, Inc. and our consolidated subsidiaries, including New York Community Bank and New York Commercial Bank (the “Community Bank” and the “Commercial Bank,” respectively, and collectively, the “Banks”).

Forward-Looking Statements and Associated Risk Factors

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

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

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

 

   

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 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 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;

 

   

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

 

   

changes in our customer base or in the financial or o