NEW YORK COMMUNITY BANCORP INC - Quarter Report: 2019 March (Form 10-Q)

Large accelerated filer

Accelerated filer

Non-Accelerated filer

Smaller Reporting Company

Emerging Growth Company

10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2019

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

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 ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes ☒ No ☐

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

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

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

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading symbol(s)	Name of each exchange on which registered
Common Stock, $0.01 par value per share	NYCB	New York Stock Exchange
Bifurcated Option Note Unit SecuritiES ^SM Fixed-to-Floating Rate Series A Noncumulative Perpetual Preferred Stock, $0.01 par value	NYCB PU NYCB PR A	New York Stock Exchange New York Stock Exchange

467,348,554

Number of shares of common stock outstanding at

May 1, 2019

NEW YORK COMMUNITY BANCORP, INC.

FORM 10-Q

Quarter Ended March 31 2019


		Page No.
	Glossary
	List of Abbreviations and Acronyms

Part I.	FINANCIAL INFORMATION

Item 1.	Financial Statements

	Consolidated Statements of Condition as of March 31, 2019 (unaudited) and December 31, 2018		1

	Consolidated Statements of Income and Comprehensive Income for the Three Months Ended March 31, 2019 and 2018 (unaudited)		2

	Consolidated Statement of Changes in Stockholders’ Equity for the Three Months Ended March 31, 2019 (unaudited)		3

	Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2019 and 2018 (unaudited)		4

	Notes to the Consolidated Financial Statements		5

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		31

Item 3.	Quantitative and Qualitative Disclosures about Market Risk		62

Item 4.	Controls and Procedures		62

Part II.	OTHER INFORMATION		63

Item 1.	Legal Proceedings		63

Item 1A.	Risk Factors		63

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		63

Item 3.	Defaults upon Senior Securities		63

Item 4.	Mine Safety Disclosures		63

Item 5.	Other Information		63

Item 6.	Exhibits		64

Signatures			65

Exhibits

GLOSSARY

BASIS POINT

Throughout this filing, the year-over-year changes that occur in certain financial measures are reported in terms of basis points. Each basis point is equal to one hundredth of a percentage point, or 0.01%.

BOOK VALUE PER COMMON SHARE

Book value per common share refers to the amount of common stockholders’ equity attributable to each outstanding share of common stock, and is calculated by dividing total stockholders’ equity less preferred stock at the end of a period, by the number of shares outstanding at the same date.

BROKERED DEPOSITS

Refers to funds obtained, directly or indirectly, by or through deposit brokers that are then deposited into one or more deposit accounts at a bank.

CHARGE-OFF

Refers to the amount of a loan balance that has been written off against the allowance for loan losses.

COMMERCIAL REAL ESTATE LOAN

A mortgage loan secured by either an income-producing property owned by an investor and leased primarily for commercial purposes or, to a lesser extent, an owner-occupied building used for business purposes. The CRE loans in our portfolio are typically secured by office buildings, retail shopping centers, light industrial centers with multiple tenants, or mixed-use properties.

COST OF FUNDS

The interest expense associated with interest-bearing liabilities, typically expressed as a ratio of interest expense to the average balance of interest-bearing liabilities for a given period.

CRE CONCENTRATION RATIO

Refers to the sum of multi-family, non-owner occupied CRE, and acquisition, development, and construction (“ADC”) loans divided by total risk-based capital.

DEBT SERVICE COVERAGE RATIO

An indication of a borrower’s ability to repay a loan, the DSCR generally measures the cash flows available to a borrower over the course of a year as a percentage of the annual interest and principal payments owed during that time.

DERIVATIVE

A term used to define a broad base of financial instruments, including swaps, options, and futures contracts, whose value is based upon, or derived from, an underlying rate, price, or index (such as interest rates, foreign currency, commodities, or prices of other financial instruments such as stocks or bonds).

DIVIDEND PAYOUT RATIO

The percentage of our earnings that is paid out to shareholders in the form of dividends. It is determined by dividing the dividend paid per share during a period by our diluted earnings per share during the same period of time.

EFFICIENCY RATIO

Measures total operating expenses as a percentage of the sum of net interest income and non-interest income.

GOODWILL

Refers to the difference between the purchase price and the fair value of an acquired company’s assets, net of the liabilities assumed. Goodwill is reflected as an asset on the balance sheet and is tested at least annually for impairment.

GOVERNMENT-SPONSORED ENTERPRISES

Refers to a group of financial services corporations that were created by the United States Congress to enhance the availability, and reduce the cost, of credit to certain targeted borrowing sectors, including home finance. The GSEs include, but are not limited to, the Federal National Mortgage Association (“Fannie Mae”), the Federal Home Loan Mortgage Corporation (“Freddie Mac”), and the Federal Home Loan Banks (the “FHLBs”).

GSE OBLIGATIONS

Refers to GSE mortgage-related securities (both certificates and collateralized mortgage obligations) and GSE debentures.

INTEREST RATE SENSITIVITY

Refers to the likelihood that the interest earned on assets and the interest paid on liabilities will change as a result of fluctuations in market interest rates.

INTEREST RATE SPREAD

The difference between the yield earned on average interest-earning assets and the cost of average interest-bearing liabilities.

LOAN-TO-VALUE RATIO

Measures the balance of a loan as a percentage of the appraised value of the underlying property.

MULTI-FAMILY LOAN

A mortgage loan secured by a rental or cooperative apartment building with more than four units.

NET INTEREST INCOME

The difference between the interest income generated by loans and securities and the interest expense produced by deposits and borrowed funds.

NET INTEREST MARGIN

Measures net interest income as a percentage of average interest-earning assets.

NON-ACCRUAL LOAN

A loan generally is classified as a “non-accrual” loan when it is 90 days or more past due or when it is deemed to be impaired because we no longer expect to collect all amounts due according to the contractual terms of the loan agreement. When a loan is placed on non-accrual status, we cease the accrual of interest owed, and previously accrued interest is reversed and charged against interest income. A loan generally is returned to accrual status when the loan is current and we have reasonable assurance that the loan will be fully collectible.

NON-PERFORMING LOANS AND ASSETS

Non-performing loans consist of non-accrual loans and loans that are 90 days or more past due and still accruing interest. Non-performing assets consist of non-performing loans, OREO and other repossessed assets.

OREO AND OTHER REPOSSESSED ASSETS

Includes real estate owned by the Company which was acquired either through foreclosure or default. Repossessed assets are similar, except they are not real estate-related assets.

RENT-REGULATED APARTMENTS

In New York City, where the vast majority of the properties securing our multi-family loans are located, the amount of rent that tenants may be charged on the apartments in certain buildings is restricted under certain “rent-control” and “rent-stabilization” laws. Rent-control laws apply to apartments in buildings that were constructed prior to February 1947. An apartment is said to be “rent-controlled” if the tenant has been living continuously in the apartment for a period of time beginning prior to July 1971. When a rent-controlled apartment is vacated, it typically becomes “rent-stabilized.” Rent-stabilized apartments are generally located in buildings with six or more units that

were built between February 1947 and January 1974. Rent-controlled and -stabilized (together, “rent-regulated”) apartments tend to be more affordable to live in because of the applicable regulations, and buildings with a preponderance of such rent-regulated apartments are therefore less likely to experience vacancies in times of economic adversity.

REPURCHASE AGREEMENTS

Repurchase agreements are contracts for the sale of securities owned or borrowed by the Bank with an agreement to repurchase those securities at an agreed-upon price and date. The Bank’s repurchase agreements are primarily collateralized by GSE obligations and other mortgage-related securities, and are entered into with either the FHLBs or various brokerage firms.

SYSTEMICALLY IMPORTANT FINANCIAL INSTITUTION (“SIFI”)

A bank holding company with total consolidated assets that average more than $250 billion over the four most recent quarters is designated a “Systemically Important Financial Institution” under the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) of 2010, as amended by the Economic Growth, Regulatory Relief, and Consumer Protection Act of 2018.

WHOLESALE BORROWINGS

Refers to advances drawn by the Bank against its line(s) of credit with the FHLBs, their repurchase agreements with the FHLBs and various brokerage firms, and federal funds purchased.

YIELD

The interest income associated with interest-earning assets, typically expressed as a ratio of interest income to the average balance of interest-earning assets for a given period.

LIST OF ABBREVIATIONS AND ACRONYMS


ADC - Acquisition, development, and construction loan		FHLB-NY - Federal Home Loan Bank of New York

ALCO - Asset and Liability Management Committee		FOMC - Federal Open Market Committee

AMT - Alternative minimum tax		FRB - Federal Reserve Board

AmTrust - AmTrust Bank		FRB-NY - Federal Reserve Bank of New York

AOCL - Accumulated other comprehensive loss		Freddie Mac - Federal Home Loan Mortgage Corporation

ASC - Accounting Standards Codification		FTEs - Full-time equivalent employees

ASU - Accounting Standards Update		GAAP - U.S. generally accepted accounting principles

BOLI - Bank-owned life insurance		GLBA - The Gramm Leach Bliley Act

BP - Basis point(s)		GNMA - Government National Mortgage Association

C&I - Commercial and industrial loan		GSEs - Government-sponsored enterprises

CCAR - Comprehensive Capital Analysis and Review		HQLAs - High-quality liquid assets

CDs - Certificates of deposit		LIBOR-London Interbank Offered Rate

CFPB - Consumer Financial Protection Bureau		LSA - Loss Share Agreements

CMOs - Collateralized mortgage obligations		LTV - Loan-to-value ratio

CMT - Constant maturity treasury rate		MBS – Mortgage-backed securities

CPI - Consumer Price Index		MSRs - Mortgage servicing rights

CPR - Constant prepayment rate		NIM - Net interest margin

CRA - Community Reinvestment Act		NOL - Net operating loss

CRE - Commercial real estate loan		NPAs - Non-performing assets

Desert Hills - Desert Hills Bank		NPLs - Non-performing loans

DIF - Deposit Insurance Fund		NPV - Net Portfolio Value

DFA - Dodd-Frank Wall Street Reform and Consumer Protection Act		NYSDFS - New York State Department of Financial Services

DSCR - Debt service coverage ratio		NYSE - New York Stock Exchange

EPS - Earnings per common share		OCC - Office of the Comptroller of the Currency

ERM - Enterprise Risk Management		OFAC - Office of Foreign Assets Control

ESOP - Employee Stock Ownership Plan		OREO - Other real estate owned

Fannie Mae - Federal National Mortgage Association		OTTI - Other-than-temporary impairment

FASB - Financial Accounting Standards Board		ROU – Right of use asset

FDI Act - Federal Deposit Insurance Act		SEC - U.S. Securities and Exchange Commission

FDIC - Federal Deposit Insurance Corporation		SIFI - Systemically Important Financial Institution

FHLB - Federal Home Loan Bank		TDRs - Troubled debt restructurings

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

NEW YORK COMMUNITY BANCORP, INC.

CONSOLIDATED STATEMENTS OF CONDITION

(in thousands, except share data)


	March 31, 2019			December 31, 2018
	(unaudited)
Assets:
Cash and cash equivalents	$	990,019		$	1,474,955
Securities:
Debt securities available-for-sale ($1,700,420 and $1,228,702 pledged, respectively)		5,724,644			5,613,520
Equity investments with readily determinable fair values, at fair value		32,128			30,551

Total securities		5,756,772			5,644,071

Loans and leases, net of deferred loan fees and costs		40,526,019			40,165,908
Less: Allowance for loan losses		(156,636	)		(159,820	)

Total loans and leases, net		40,369,383			40,006,088
Federal Home Loan Bank stock, at cost		588,197			644,590
Premises and equipment, net		332,721			346,179
Operating lease right-of-use assets		312,948			—
Goodwill		2,426,379			2,436,131
Bank-owned life insurance		982,267			977,627
Other real estate owned and other repossessed assets		12,758			10,794
Other assets		359,602			358,941

Total assets	$	52,131,046		$	51,899,376

Liabilities and Stockholders’ Equity:
Deposits:
Interest-bearing checking and money market accounts	$	11,482,591		$	11,530,049
Savings accounts		4,760,877			4,643,260
Certificates of deposit		12,767,779			12,194,322
Non-interest-bearing accounts		2,589,878			2,396,799

Total deposits		31,601,125			30,764,430

Borrowed funds:
Wholesale borrowings:
Federal Home Loan Bank advances		11,803,661			13,053,661
Repurchase agreements		800,000			500,000

Total wholesale borrowings		12,603,661			13,553,661
Junior subordinated debentures		359,594			359,508
Subordinated notes		294,655			294,697

Total borrowed funds		13,257,910			14,207,866

Operating lease liabilities		312,628			—
Other liabilities		330,313			271,845

Total liabilities		45,501,976			45,244,141

Stockholders’ equity:
Preferred stock at par $0.01 (5,000,000 shares authorized): Series A (515,000 shares issued and outstanding)		502,840			502,840
Common stock at par $0.01 (900,000,000 shares authorized; 490,439,070 and 490,439,070 shares issued; and 467,236,136 and 473,536,604 shares outstanding, respectively)		4,904			4,904
Paid-in capital in excess of par		6,092,792			6,099,940
Retained earnings		307,232			297,202
Treasury stock, at cost (23,202,934 and 16,902,466 shares, respectively)		(221,728	)		(161,998	)
Accumulated other comprehensive loss, net of tax:
Net unrealized (loss) gain on securities available for sale, net of tax of ($7,150) and $4,201, respectively		18,329			(10,534	)
Net unrealized loss on the non-credit portion of OTTI losses on securities, net of tax of $2,517 and $2,517, respectively		(6,042	)		(6,042	)
Net unrealized loss on pension and post-retirement obligations, net of tax of $26,513 and $27,224, respectively		(69,257	)		(71,077	)

Total accumulated other comprehensive loss, net of tax		(56,970	)		(87,653	)

Total stockholders’ equity		6,629,070			6,655,235

Total liabilities and stockholders’ equity	$	52,131,046		$	51,899,376

See accompanying notes to the consolidated financial statements.

NEW YORK COMMUNITY BANCORP, INC.

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

(in thousands, except per share data)

(unaudited)


	For the Three Months Ended March 31,
	2019			2018
Interest Income:
Mortgage and other loans	$	379,790		$	355,917
Securities and money market investments		66,384			48,408

Total interest income		446,174			404,325

Interest Expense:
Interest-bearing checking and money market accounts		50,159			34,369
Savings accounts		8,083			7,221
Certificates of deposit		67,775			30,515
Borrowed funds		78,832			61,922

Total interest expense		204,849			134,027

Net interest income		241,325			270,298
(Recovery of) provision for losses on loans		(1,222	)		9,571

Net interest income after (recovery of) provision for loan losses		242,547			260,727

Non-Interest Income:
Fee income		7,228			7,327
Bank-owned life insurance		6,975			6,804
Net gain (loss) on securities		6,987			(466	)
Other		3,595			9,192

Total non-interest income		24,785			22,857

Non-Interest Expense:
Operating expenses:
Compensation and benefits		81,440			83,975
Occupancy and equipment		22,962			24,884
General and administrative		34,365			30,248

Total non-interest expense		138,767			139,107

Income before income taxes		128,565			144,477
Income tax expense		30,988			37,925

Net income	$	97,577		$	106,552
Preferred stock dividends		8,207			8,207

Net income available to common shareholders	$	89,370		$	98,345

Basic earnings per common share	$	0.19		$	0.20

Diluted earnings per common share	$	0.19		$	0.20

Net income	$	97,577		$	106,552
Other comprehensive income (loss), net of tax:
Change in net unrealized gain (loss) on securities available for sale, net of tax of $(12,868) and $24,607, respectively		32,755			(31,138	)
Change in the non-credit portion of OTTI losses recognized in other comprehensive income (loss), net of tax of $0 and $(821), respectively		—			(821	)
Change in pension and post-retirement obligations, net of tax of $(711) and $10,517, respectively		1,820			(8,656	)
Less: Reclassification adjustment for sales of available-for-sale securities, net of tax of $1,517.		(3,892	)		—

Total other comprehensive income (loss), net of tax		30,683			(40,615	)

Total comprehensive income, net of tax	$	128,260		$	65,937

See accompanying notes to the consolidated financial statements.

NEW YORK COMMUNITY BANCORP, INC.

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

(in thousands, except share data)

(unaudited)


	For the Three Months Ended March 31,
	2019			2018
Preferred Stock (Par Value: $0.01):
Balance at beginning of year	$	502,840		$	502,840

Balance at end of period		502,840			502,840

Common Stock (Par Value: $0.01):
Balance at beginning of year		4,904			4,891
Shares issued for restricted stock awards (1,366,969)		—			13

Balance at end of period		4,904			4,904

Paid-in Capital in Excess of Par:
Balance at beginning of year		6,099,940			6,072,559
Shares issued for restricted stock awards, net of forfeitures		(15,058	)		(8,566	)
Compensation expense related to restricted stock awards		7,910			9,762

Balance at end of period		6,092,792			6,073,755

Retained Earnings:
Balance at beginning of year		297,202			237,868
Net income		97,577			106,552
Dividends paid on common stock ($0.17 per share)		(79,340	)		(83,242	)
Dividends paid on preferred stock ($15.94 per share)		(8,207	)		(8,207	)
Effect of adopting ASU No. 2016-01		—			260
Effect of adopting ASU No. 2018-02		—			2,546

Balance at end of period		307,232			255,777

Treasury Stock, at Cost:
Balance at beginning of year		(161,998	)		(7,615	)
Purchase of common stock (7,816,228 and 126,483, respectively)		(74,788	)		(1,715	)
Shares issued for restricted stock awards (1,515,760 and 648,694, respectively)		15,058			8,553

Balance at end of period		(221,728	)		(777	)

Accumulated Other Comprehensive Loss, Net of Tax:
Balance at beginning of year		(87,653	)		(15,167	)
Effect of adopting ASU No. 2018-02		—			(2,546	)
Other comprehensive income (loss), net of tax		30,683			(38,069	)

Balance at end of period		(56,970	)		(55,782	)

Total stockholders’ equity	$	6,629,070		$	6,780,717

See accompanying notes to the consolidated financial statements.

NEW YORK COMMUNITY BANCORP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)


	For the Three Months Ended March 31,
	2019			2018
Cash Flows from Operating Activities:
Net income	$	97,577		$	106,552
Adjustments to reconcile net income to net cash provided by operating activities:
(Recovery of) provision for loan losses		(1,222	)		9,571
Depreciation		6,950			8,382
Amortization of discounts and premiums, net		1,195			(2,044	)
Net gain on sales of securities		(5,409	)		—
Gain on trading securities activity		(35	)		(172	)
Net loss (gain) on sales of loans		10			(37	)
Stock-based compensation		7,910			9,762
Deferred tax expense		2,811			3,175
Changes in operating assets and liabilities:
Increase in other assets ⁽¹⁾		15,797			18,868
Increase (decrease) in other liabilities⁽²⁾		32,818			(5,960	)
Purchases of securities held for trading		(22,500	)		(110,000	)
Proceeds from sales of securities held for trading		22,535			110,172

Net cash provided by operating activities		158,437			148,269

Cash Flows from Investing Activities:
Proceeds from repayment of securities available for sale		316,103			346,614
Proceeds from sales of securities available for sale		272,849			—
Purchase of securities available for sale		(655,425	)		(292,927	)
Redemption of Federal Home Loan Bank stock		58,643			12,330
Purchases of Federal Home Loan Bank stock		(2,250	)		(31,500	)
Proceeds from bank-owned life insurance		2,664			7,785
Proceeds from sales of loans		29,326			31,528
Other changes in loans, net		(391,409	)		(535,564	)
Dispositions (purchase) of premises and equipment, net		1,946			(4,039	)

Net cash used in investing activities		(367,553	)		(465,773	)

Cash Flows from Financing Activities:
Net increase in deposits		836,695			133,271
Proceeds from long-term borrowed funds		749,820			1,950,000
Repayments of long-term borrowed funds		(1,700,000	)		(1,520,000	)
Cash dividends paid on common stock		(79,340	)		(83,242	)
Cash dividends paid on preferred stock		(8,207	)		(8,207	)
Treasury stock repurchased		(67,125	)		—
Payments relating to treasury shares received for restricted stock award tax payments		(7,663	)		(1,715	)

Net cash (used in) provided by financing activities		(275,820	)		470,107

Net decrease in cash, cash equivalents, and restricted cash		(484,936	)		152,603
Cash, cash equivalents, and restricted cash at beginning of period		1,474,955			2,528,169

Cash, cash equivalents, and restricted cash at end of period	$	990,019		$	2,680,772

Supplemental information:
Cash paid for interest	$	187,890		$	131,160
Cash paid for income taxes		5,908			5,236
Non-cash investing and financing activities:
Transfers to repossessed assets from loans	$	2,840		$	800
Operating lease liabilities arising from obtaining right-of-use assets as of January 1, 2019		324,360			—
Transfer of loans from held for investment to held for sale		29,336			31,491
Dispositions of premises and equipment		1,245			—
Shares issued for restricted stock awards		15,058			8,566

(1)	Includes $11.7 million of amortization of operating lease right-of-use assets for the three months ended March 31, 2019.

(2)	Includes $11.7 million of amortization of operating lease liability for the three months ended March 31, 2019.

See accompanying notes to the consolidated financial statements.

NEW YORK COMMUNITY BANCORP, INC.

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Organization and Basis of Presentation

Organization

New York Community Bancorp, Inc. (on a stand-alone basis, the “Parent Company” or, collectively with its subsidiaries, the “Company”) was organized under Delaware law on July 20, 1993 and is the holding company for New York Community Bank (hereinafter referred to as the “Bank”).

Founded on April 14, 1859 and formerly known as Queens County Savings Bank, the Bank converted from a state-chartered mutual savings bank to the capital stock form of ownership on November 23, 1993, at which date the Company completed its initial offering of common stock (par value: $0.01 per share) at a price of $25.00 per share ($0.93 per share on a split-adjusted basis, reflecting the impact of nine stock splits between 1994 and 2004).

The Company currently operates 240 branches through eight local divisions, each with a history of service and strength: Queens County Savings Bank, Roslyn Savings Bank, Richmond County Savings Bank, Roosevelt Savings Bank, and Atlantic Bank in New York; Garden State Community Bank in New Jersey; Ohio Savings Bank in Ohio; and AmTrust Bank in Arizona and Florida.

Basis of Presentation

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

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

Note 2. Computation of Earnings per Common Share

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

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

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


	Three Months Ended March 31,
(in thousands, except share and per share amounts)	2019			2018
Net income available to common shareholders	$	89,370		$	98,345
Less: Dividends paid on and earnings allocated to participating securities		(1,119	)		(900	)

Earnings applicable to common stock	$	88,251		$	97,445

Weighted average common shares outstanding		465,493,702			488,140,102

Basic earnings per common share	$	0.19		$	0.20

Earnings applicable to common stock	$	88,251		$	97,445

Weighted average common shares outstanding		465,493,702			488,140,102
Potential dilutive common shares		—			—

Total shares for diluted earnings per common share computation		465,493,702			488,140,102

Diluted earnings per common share and common share equivalents	$	0.19		$	0.20

Note 3. Reclassifications Out of Accumulated Other Comprehensive Loss


(in thousands)	For the Three Months Ended March 31, 2019
Details about Accumulated Other Comprehensive Loss	Amount Reclassified out of Accumulated Other Comprehensive Loss ⁽¹⁾			Affected Line Item in the Consolidated Statements of Operations and Comprehensive Income
Unrealized losses on available-for-sale securities	$	5,409		Net (loss) gain on securities
		(1,517	)	Income tax benefit

	$	3,892		Net (loss) gain on securities, net of tax

Amortization of defined benefit pension plan items:
Past service liability	$	62		Included in the computation of net periodic credit⁽²⁾
Actuarial losses		(2,540	)	Included in the computation of net periodic credit ⁽²⁾

		(2,478	)	Total before tax
		695		Income tax benefit

	$	(1,783	)	Amortization of defined benefit pension plan items, net of tax

Total reclassifications for the period	$	2,109

(1)	Amounts in parentheses indicate expense items.

(2)	See Note 8, “Pension and Other Post-Retirement Benefits,” for additional information.

Note 4. Securities

The following tables summarize the Company’s portfolio of debt securities available for sale and equity investments with readily determinable fair values at March 31, 2019 and December 31, 2018:


	March 31, 2019
(in thousands)	Amortized Cost		Gross Unrealized Gain		Gross Unrealized Loss		Fair Value
Debt securities available-for-sale
Mortgage-Related Debt Securities:
GSE certificates	$	1,380,756	$	21,538	$	6,663	$	1,395,631
GSE CMOs		1,447,677		11,479		4,027		1,455,129

Total mortgage-related debt securities	$	2,828,433	$	33,017	$	10,690	$	2,850,760

Other Debt Securities:
U. S. Treasury obligations	$	29,659	$	3	$	—	$	29,662
GSE debentures		1,478,777		5,211		1,615		1,482,373
Asset-backed securities ⁽¹⁾		386,085		346		1,757		384,674
Municipal bonds		68,277		423		1,502		67,198
Corporate bonds		859,644		9,292		8,881		860,055
Capital trust notes		48,291		6,614		4,983		49,922

Total other debt securities	$	2,870,733	$	21,889	$	18,738	$	2,873,884

Total other securities available for sale ⁽²⁾	$	5,699,166	$	54,906	$	29,428	$	5,724,644

Equity securities:
Preferred stock		15,292		—		145		15,147
Mutual funds and common stock ⁽³⁾		16,870		481		370		16,981

Total equity securities	$	32,162	$	481	$	515	$	32,128

Total securities	$	5,731,328	$	55,387	$	29,943	$	5,756,772

(1)	The underlying assets of the asset-backed securities are substantially guaranteed by the U.S. Government.

(2)	The amortized cost includes the non-credit portion of OTTI recorded in AOCL. At March 31, 2019, the non-credit portion of OTTI recorded in AOCL was $8.6 million before taxes.

(3)	Primarily consists of mutual funds that are CRA-qualified investments.


	December 31, 2018
(in thousands)	Amortized Cost		Gross Unrealized Gain		Gross Unrealized Loss		Fair Value
Debt securities available-for-sale
Mortgage-Related Debt Securities:
GSE certificates	$	1,705,336	$	18,146	$	15,961	$	1,707,521
GSE CMOs		1,248,621		8,380		4,240		1,252,761

Total mortgage-related debt securities	$	2,953,957	$	26,526	$	20,201	$	2,960,282

Other Debt Securities:
GSE debentures	$	1,334,549	$	3,366	$	8,988	$	1,328,927
Asset-backed securities ⁽¹⁾		386,768		784		430		387,122
Municipal bonds		68,551		195		2,563		66,183
Corporate bonds		836,153		8,667		23,105		821,715
Capital trust notes		48,278		6,435		5,422		49,291

Total other debt securities	$	2,674,299	$	19,447	$	40,508	$	2,653,238

Total other securities available for sale ⁽²⁾	$	5,628,256	$	45,973	$	60,709	$	5,613,520

Equity securities:
Preferred stock		15,292		—		1,446		13,846
Mutual funds and common stock ⁽³⁾		16,870		366		531		16,705

Total equity securities	$	32,162	$	366	$	1,977	$	30,551

Total securities	$	5,660,418	$	46,339	$	62,686	$	5,644,071

(1)	The underlying assets of the asset-backed securities are substantially guaranteed by the U.S. Government.

(2)	The amortized cost includes the non-credit portion of OTTI recorded in AOCL. At December 31, 2018, the non-credit portion of OTTI recorded in AOCL was $8.6 million before taxes.

(3)	Primarily consists of mutual funds that are CRA-qualified investments.

At March 31, 2019 and December 31, 2018, respectively, the Company had $588.2 million and $644.6 million of FHLB-NY stock, at cost. The Company maintains an investment in FHLB-NY stock partly in conjunction with its membership in the FHLB and partly related to its access to the FHLB funding it utilizes.

The following table summarizes the gross proceeds and gross realized gains from the sale of available-for-sale securities during the three months ended March 31, 2019 and 2018:


	For the Three Months Ended March 31,
(in thousands)	2019		2018
Gross proceeds	$	272,849		—
Gross realized gains		5,409		—

In the following table, the beginning balance represents the credit loss component for debt securities on which OTTI occurred prior to January 1, 2019. For credit-impaired debt securities, OTTI recognized in earnings after that date is presented as an addition in two components, based upon whether the current period is the first time a debt security was credit-impaired (initial credit impairment) or is not the first time a debt security was credit-impaired (subsequent credit impairment).


(in thousands)	For the Three Months Ended March 31, 2019
Beginning credit loss amount as of December 31, 2018	$	196,187
Add: Initial other-than-temporary credit losses		—
Subsequent other-than-temporary credit losses		—
Amount previously recognized in AOCL		—
Less: Realized losses for securities sold		—
Securities intended or required to be sold		—
Increase in cash flows on debt securities		19

Ending credit loss amount as of March 31, 2019	$	196,168

The following table summarizes, by contractual maturity, the amortized cost of securities at March 31, 2019:


	Mortgage- Related Securities		Average Yield			U.S. Government and GSE Obligations		Average Yield			State, County, and Municipal		Average Yield ⁽¹⁾			Other Debt Securities ⁽²⁾		Average Yield			Fair Value
(dollars in thousands)
Available-for-Sale Debt Securities:
Due within one year	$	—		—	%	$	29,659		2.45	%	$	149		6.59	%	$	—		—	%	$	29,815
Due from one to five years		797,756		3.33			32,874		3.48			146		6.66			92,939		3.79			941,396
Due from five to ten years		325,241		3.46			1,232,053		3.44			10,974		3.79			767,143		4.42			2,345,797
Due after ten years		1,705,436		3.23			213,850		3.57			57,008		2.71			433,938		3.39			2,407,636

Total debt securities available for sale	$	2,828,433		3.28	%	$	1,508,436		3.44	%	$	68,277		2.90	%	$	1,294,020		4.03	%	$	5,724,644

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

(2)	Includes corporate bonds, capital trust notes, and asset-backed securities.

The following table presents securities having a continuous unrealized loss position for less than twelve months and for twelve months or longer as of March 31, 2019:


	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 Securities:
U. S. Government agency and GSE obligations	$	218,933	$	1,171	$	127,748	$	444	$	346,681	$	1,615
GSE certificates		—		—		440,027		6,663		440,027		6,663
GSE CMOs		428,352		1,894		146,100		2,133		574,452		4,027
Asset-backed securities		237,208		1,757		—		—		237,208		1,757
Municipal bonds		—		—		49,612		1,502		49,612		1,502
Corporate bonds		701,445		8,881		—		—		701,445		8,881
Capital trust notes		—		—		38,811		4,983		38,811		4,983
Equity securities		15,147		145		11,435		370		26,582		515

Total temporarily impaired securities	$	1,601,085	$	13,848	$	813,733	$	16,095	$	2,414,818	$	29,943

The following table presents securities having a continuous unrealized loss position for less than twelve months and for twelve months or longer as of December 31, 2018:


	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 Securities:
U. S. Government agency and GSE obligations	$	276,113	$	2,629	$	329,372	$	6,359	$	605,485	$	8,988
GSE certificates		576,970		10,598		232,969		5,363		809,939		15,961
GSE CMOs		465,779		1,892		99,050		2,348		564,829		4,240
Asset-backed securities		69,166		430		—		—		69,166		430
Municipal bonds		5,876		21		48,837		2,542		54,713		2,563
Corporate bonds		642,843		23,105		—		—		642,843		23,105
Capital trust notes		—		—		38,360		5,422		38,360		5,422
Equity securities		17,836		1,464		11,293		513		29,129		1,977

Total temporarily impaired securities	$	2,054,583	$	40,139	$	759,881	$	22,547	$	2,814,464	$	62,686

An OTTI loss on impaired debt securities must be fully recognized in earnings if an investor has the intent to sell the debt security, or if it is more likely than not that the investor will be required to sell the debt security before recovery of its amortized cost. However, even if an investor does not expect to sell a debt security, it must evaluate the expected cash flows to be received and determine if a credit loss has occurred. In the event that a credit loss occurs, only the amount of impairment associated with the credit loss is recognized in earnings. Amounts of impairment relating to factors other than credit losses are recorded in AOCL.

At March 31, 2019, the Company had unrealized losses on certain available for sale GSE obligations, municipal bonds, corporate bonds, asset-backed securities, capital trust notes, and equity investments with readily determinable fair values. The unrealized losses on the Company’s GSE obligations, municipal bonds, corporate bonds, asset-backed securities and capital trust notes at March 31, 2019 were primarily caused by movements in market interest rates and spread volatility, rather than credit risk. These securities are not expected to be settled at a price that is less than the amortized cost of the Company’s investment.

The Company reviews quarterly financial information related to its investments in capital trust notes, as well as other information that is released by each of the issuers of such notes, to determine their continued creditworthiness. The Company continues to monitor these investments and currently estimates that the present value of expected cash flows is not less than the amortized cost of the securities. It is possible that these securities will perform worse than is currently expected, which could lead to adverse changes in cash flows from these securities and potential OTTI losses in the future. Future events that could trigger material unrecoverable declines in the fair values of the Company’s investments, and thus result in potential OTTI losses, include, but are not limited to, government intervention; deteriorating asset quality and credit metrics; significantly higher levels of default and loan loss provisions; losses in value on the underlying collateral; net operating losses; and illiquidity in the financial markets.

The unrealized losses on the Company’s equity investments with readily determinable fair values at March 31, 2019 were caused by market volatility. Equity investments with readily determinable fair values are measured at fair value with changes in fair value recognized in net income, thus eliminating eligibility for the available-for-sale category. Events that could trigger a material decline in the fair value of these securities include, but are not limited to, deterioration in the equity markets; a decline in the quality of the loan portfolio of the issuer in which the Company has invested; and the recording of higher loan loss provisions and net operating losses by such issuer.

The investment securities designated as having a continuous loss position for twelve months or more at March 31, 2019 consisted of twelve agency mortgage-related securities, nine agency collateralized mortgage obligations, five capital trusts notes, four US Government agency securities, three municipal bonds, and one mutual fund. At December 31, 2018 securities designated as having a continuous loss position for twelve months or more consisted of nine agency mortgage-related securities, nine US Government agency securities, seven agency collateralized mortgage obligations, five capital trusts notes, three municipal bonds, and one mutual fund.

At March 31, 2019, the fair value of securities having a continuous loss position for twelve months or more was 1.9% below the collective amortized cost of $829.8 million. At December 31, 2018, the fair value of such securities was 2.9% below the collective amortized cost of $782.4 million. At March 31, 2019 and December 31, 2018, the combined market value of the respective securities represented unrealized losses of $16.1 million and $22.5 million, respectively.

Note 5. Loans and Leases

The following table sets forth the composition of the loan and lease portfolio at the dates indicated:


	March 31, 2019						December 31, 2018
(dollars in thousands)	Amount			Percent of Loans Held for Investment			Amount			Percent of Loans Held for Investment
Loans and Leases Held for Investment:
Mortgage Loans:
Multi-family	$	29,932,829			73.92	%	$	29,883,919			74.46	%
Commercial real estate		7,079,241			17.49			6,998,834			17.44
One-to-four family		435,686			1.08			446,094			1.11
Acquisition, development, and construction		326,634			0.81			407,870			1.02

Total mortgage loans held for investment		37,774,390			93.30		$	37,736,717			94.03

Other Loans:
Commercial and industrial		1,764,169			4.36			1,705,308			4.25
Lease financing, net of unearned income of $74,451 and $53,891, respectively⁽¹⁾		940,895			2.32			683,112			1.70

Total commercial and industrial loans ⁽²⁾		2,705,064			6.68			2,388,420			5.95
Other		7,976			0.02			8,724			0.02

Total other loans held for investment		2,713,040			6.70			2,397,144			5.97

Total loans and leases held for investment	$	40,487,430			100.00	%	$	40,133,861			100.00	%

Net deferred loan origination costs		38,589						32,047
Allowance for losses		(156,636	)					(159,820	)

Total loans and leases, net	$	40,369,383					$	40,006,088

(1)	The payments on these leases are generally received ratably over future years. Approximately 41% of the payments are expected to be received over the next five years.

(2)	Includes specialty finance loans and leases of $2.2 billion and $1.9 billion, respectively, at March 31, 2019 and December 31, 2018 and other C&I loans of $477.5 million and $469.9 million, respectively, at March 31, 2019 and December 31, 2018.

Loans and Leases

Loans and Leases Held for Investment

The majority of the loans the Company originates for investment are multi-family loans, most of which are collateralized by non-luxury apartment buildings in New York City with rent-regulated units and below-market rents. In addition, the Company originates CRE loans, most of which are collateralized by income-producing properties such as office buildings, retail centers, mixed-use buildings, and multi-tenanted light industrial properties that are located in New York City and on Long Island.

To a lesser extent, the Company also originates ADC loans for investment. One-to-four family loans held for investment were originated through the Company’s former mortgage banking operation and primarily consisted of jumbo prime adjustable rate mortgages made to borrowers with a solid credit history.

ADC loans are primarily originated for multi-family and residential tract projects in New York City and on Long Island. C&I loans consist of asset-based loans, equipment loans and leases, and dealer floor-plan loans (together, specialty finance loans and leases) that generally are made to large corporate obligors, many of which are publicly traded, carry investment grade or near-investment grade ratings, and participate in stable industries nationwide; and other C&I loans that primarily are made to small and mid-size businesses in Metro New York. Other C&I loans are typically made for working capital, business expansion, and the purchase of machinery and equipment.

The repayment of multi-family and CRE loans generally depends on the income produced by the underlying properties which, in turn, depends on their successful operation and management. To mitigate the potential for credit losses, the Company underwrites its loans in accordance with credit standards it considers to be prudent, looking first at the consistency of the cash flows being produced by the underlying property. In addition, multi-family buildings, CRE properties, and ADC projects are inspected as a prerequisite to approval, and independent appraisers, whose appraisals are carefully reviewed by the Company’s in-house appraisers, perform appraisals on the collateral properties. In many cases, a second independent appraisal review is performed.

To further manage its credit risk, the Company’s lending policies limit the amount of credit granted to any one borrower and typically require conservative debt service coverage ratios and loan-to-value ratios. Nonetheless, the ability of the Company’s borrowers to repay these loans may be impacted by adverse conditions in the local real estate market and the local economy.

Accordingly, there can be no assurance that its underwriting policies will protect the Company from credit-related losses or delinquencies.

ADC loans typically involve a higher degree of credit risk than loans secured by improved or owner-occupied real estate. Accordingly, borrowers are required to provide a guarantee of repayment and completion, and loan proceeds are disbursed as construction progresses, as certified by in-house inspectors or third-party engineers. The Company seeks to minimize the credit risk on ADC loans by maintaining conservative lending policies and rigorous underwriting standards. However, if the estimate of value proves to be inaccurate, the cost of completion is greater than expected, or the length of time to complete and/or sell or lease the collateral property is greater than anticipated, the property could have a value upon completion that is insufficient to assure full repayment of the loan. This could have a material adverse effect on the quality of the ADC loan portfolio, and could result in losses or delinquencies. In addition, the Company utilizes the same stringent appraisal process for ADC loans as it does for its multi-family and CRE loans.

To minimize the risk involved in specialty finance lending and leasing, the Company participates in syndicated loans that are brought to it, and equipment loans and leases that are assigned to it, by a select group of nationally recognized sources who have had long-term relationships with its experienced lending officers. Each of these credits is secured with a perfected first security interest or outright ownership in the underlying collateral, and structured as senior debt or as a non-cancelable lease. To further minimize the risk involved in specialty finance lending and leasing, each transaction is re-underwritten. In addition, outside counsel is retained to conduct a further review of the underlying documentation.

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

Included in loans held for investment at March 31, 2019 were loans of $35.0 million to officers, directors, and their related interests and parties. There were no loans to principal shareholders at that date.

Lease Financing

The Company is a lessor in the equipment finance business where it has executed direct financing leases. The Company uses the interest rate implicit in the lease to determine the present value of its lease financing receivables. The Company recognized $7.3 million of interest income on its leases during the three months ended March 31, 2019.

On all of its lease financings, the Company obtains residual value insurance from third parties and/or the lessee to manage the risk associated with the residual value of the leased assets.

Asset Quality

The following table presents information regarding the quality of the Company’s loans held for investment at March 31, 2019:


(in thousands)	Loans 30-89 Days Past Due		Non- Accrual Loans		Loans 90 Days or More Delinquent and Still Accruing Interest		Total Past Due Loans		Current Loans		Total Loans Receivable
Multi-family	$	2,359	$	4,070	$	—	$	6,429	$	29,926,400	$	29,932,829
Commercial real estate		3,278		3,007		—		6,285		7,072,956		7,079,241
One-to-four family		9		1,637		—		1,646		434,040		435,686
Acquisition, development, and construction		6,608		—		—		6,608		320,026		326,634
Commercial and industrial^{(1) (2)}		231		49,851		—		50,082		2,654,982		2,705,064
Other		45		9		—		54		7,922		7,976

Total	$	12,530	$	58,574	$	—	$	71,104	$	40,416,326	$	40,487,430

(1)	Includes $33.8 million of taxi medallion-related loans that were 90 days or more past due. There were no taxi medallion-related loans that were 30 to 89 days past due.

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

The following table presents information regarding the quality of the Company’s loans held for investment at December 31, 2018:


(in thousands)	Loans 30-89 Days Past Due		Non- Accrual Loans		Loans 90 Days or More Delinquent and Still Accruing Interest		Total Past Due Loans		Current Loans		Total Loans Receivable
Multi-family	$	—	$	4,220	$	—	$	4,220	$	29,879,699	$	29,883,919
Commercial real estate		—		3,021		—		3,021		6,995,813		6,998,834
One-to-four family		9		1,651		—		1,660		444,434		446,094
Acquisition, development, and construction		—		—		—		—		407,870		407,870
Commercial and industrial^{(1) (2)}		530		36,608		—		37,138		2,351,282		2,388,420
Other		25		6		—		31		8,693		8,724

Total	$	564	$	45,506	$	—	$	46,070	$	40,087,791	$	40,133,861

(1)	Includes $530,000 and $35.5 million of taxi medallion-related loans that were 30 to 89 days past due and 90 days or more past due, respectively.

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

The following table summarizes the Company’s portfolio of loans held for investment by credit quality indicator at March 31, 2019:


	Mortgage Loans										Other Loans
(in thousands)	Multi- Family		Commercial Real Estate		One-to- Four Family		Acquisition, Development, and Construction		Total Mortgage Loans		Commercial and Industrial⁽¹⁾		Other		Total Other Loans
Credit Quality Indicator:
Pass	$	29,671,752	$	6,944,249	$	432,380	$	276,666	$	37,325,047	$	2,628,058	$	7,717	$	2,635,775
Special mention		232,295		63,529		1,669		36,825		334,318		3,722		—		3,722
Substandard		28,782		71,463		1,637		13,143		115,025		73,284		259		73,543
Doubtful		—		—		—		—		—		—		—		—

Total	$	29,932,829	$	7,079,241	$	435,686	$	326,634	$	37,774,390	$	2,705,064	$	7,976	$	2,713,040

(1)	Includes lease financing receivables, all of which were classified as Pass.

The following table summarizes the Company’s portfolio of loans held for investment by credit quality indicator at December 31, 2018:


	Mortgage Loans										Other Loans
(in thousands)	Multi- Family		Commercial Real Estate		One-to- Four Family		Acquisition, Development, and Construction		Total Mortgage Loans		Commercial and Industrial⁽¹⁾		Other		Total Other Loans
Credit Quality Indicator:
Pass	$	29,548,242	$	6,880,105	$	444,443	$	319,001	$	37,191,791	$	2,306,563	$	8,469	$	2,315,032
Special mention		312,025		90,653		—		73,964		476,642		19,751		—		19,751
Substandard		23,652		28,076		1,651		14,905		68,284		62,106		255		62,361
Doubtful		—		—		—		—		—		—		—		—

Total	$	29,883,919	$	6,998,834	$	446,094	$	407,870	$	37,736,717	$	2,388,420	$	8,724	$	2,397,144

(1)	Includes lease financing receivables, all of which were classified as Pass.

The preceding classifications are the most current ones available and generally have been updated within the last twelve months. In addition, they follow regulatory guidelines and can generally be described as follows: pass loans are of satisfactory quality; special mention loans have potential weaknesses that deserve management’s close attention; substandard loans are inadequately protected by the current net worth and paying capacity of the borrower or of the collateral pledged (these loans have a well-defined weakness and there is a possibility that the Company will sustain some loss); and doubtful loans, based on existing circumstances, have weaknesses that make collection or liquidation in full highly questionable and improbable. In addition, one-to-four family loans are classified based on the duration of the delinquency.

Troubled Debt Restructurings

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

In an effort to proactively manage delinquent loans, the Company has selectively extended to certain borrowers concessions such as rate reductions, extension of maturity dates, and forbearance agreements. As of March 31, 2019, loans on which concessions were made with respect to rate reductions and/or extension of maturity dates amounted to $34.6 million; loans on which forbearance agreements were reached amounted to $37,000.

The following table presents information regarding the Company’s TDRs as of March 31, 2019 and December 31, 2018:


	March 31, 2019						December 31, 2018
(in thousands)	Accruing		Non-Accrual		Total		Accruing		Non-Accrual		Total
Loan Category:
Multi-family	$	—	$	4,070	$	4,070	$	—	$	4,220	$	4,220
Commercial real estate		—		—		—		—		—		—
One-to-four family		—		1,012		1,012		—		1,022		1,022
Acquisition, development, and construction		6,535		—		6,535		8,297		—		8,297
Commercial and industrial		865		22,117		22,982		865		20,477		21,342

Total	$	7,400	$	27,199		34,599	$	9,162	$	25,719	$	34,881

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

The financial effects of the Company’s TDRs for the three months ended March 31, 2019 and 2018 are summarized as follows:


	For the Three Months Ended March 31, 2019
(dollars in thousands)							Weighted Average Interest Rate
(dollars in thousands)	Number of Loans		Pre-Modification Recorded Investment		Post-Modification Recorded Investment		Pre- Modification			Post- Modification			Charge-off Amount		Capitalized Interest
Loan Category:
Commercial and industrial		15	$	4.194	$	3,088		3.26	%		2.98	%	$	1,106	$	—


	For the Three Months Ended March 31, 2018
(dollars in thousands)							Weighted Average Interest Rate
(dollars in thousands)	Number of Loans		Pre-Modification Recorded Investment		Post-Modification Recorded Investment		Pre- Modification			Post- Modification			Charge-off Amount		Capitalized Interest
Loan Category:
Acquisition, development, and construction		1	$	900	$	900		4.50	%		4.50	%	$	—	$	—
Commercial and industrial		6		3,166		1,754		3.28			3.21			1,318		—

Total		7	$	4,066	$	2,654							$	1,318	$	—

At March 31, 2019, three C&I loans, in the amount of $566,000 that had been modified as a TDR during the twelve months ended at that date and were in payment default. At March 31, 2018, 11 C&I loans in the amount of $2.9 million that had been modified as a TDR during the twelve months ended at that date were in prepayment default.

The Company does not consider a payment to be in default when the loan is in forbearance, or otherwise granted a delay of payment, when the agreement to forebear or allow a delay of payment is part of a modification.

Subsequent to the modification, the loan is not considered to be in default until payment is contractually past due in accordance with the modified terms. However, the Company does consider a loan with multiple modifications or forbearance periods to be in default, and would also consider a loan to be in default if the borrower were in bankruptcy or if the loan were partially charged off subsequent to modification.

Note 6. Allowance for Loan Losses

The following tables provide additional information regarding the Company’s allowance for loan losses based upon the method of evaluating loan impairment:


(in thousands)	Mortgage		Other		Total
Allowances for Loan Losses at March 31, 2019:
Loans individually evaluated for impairment	$	—	$	709	$	709
Loans collectively evaluated for impairment		128,766		27,161		155,927

Total	$	128,766	$	27,870	$	156,636


(in thousands)	Mortgage		Other		Total
Allowances for Loan Losses at December 31, 2018:
Loans collectively evaluated for impairment	$	130,983	$	28,837	$	159,820

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


(in thousands)	Mortgage		Other		Total
Loans Receivable at March 31, 2019:
Loans individually evaluated for impairment	$	13,873	$	49,739	$	63,612
Loans collectively evaluated for impairment		37,760,517		2,663,301		40,423,818

Total	$	37,774,390	$	2,713,040	$	40,487,430


(in thousands)	Mortgage		Other		Total
Loans Receivable at December 31, 2018:
Loans individually evaluated for impairment	$	15,794	$	36,375	$	52,169
Loans collectively evaluated for impairment		37,720,923		2,360,769		40,081,692

Total	$	37,736,717	$	2,397,144	$	40,133,861

Allowance for Loan Losses

The following table summarizes activity in the allowance for loan losses for the periods indicated:


	For the Three Months Ended March 31,
	2019									2018
(in thousands)	Mortgage			Other			Total			Mortgage			Other			Total
Balance, beginning of period	$	130,983		$	28,837		$	159,820		$	128,275		$	29,771		$	158,046
Charge-offs		—			(2,079	)		(2,079	)		(5,411	)		(1,580	)		(6,991	)
Recoveries		7			110			117			110			404			514
(Recovery of) provision for loan losses		(2,224	)		1,002			(1,222	)		6,161			3,410			9,571

Balance, end of period	$	128,766		$	27,870		$	156,636		$	129,135		$	32,005		$	161,140

The following table presents additional information about the Company’s impaired loans at March 31, 2019:


(in thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
Impaired loans with no related allowance:
Multi-family	$	4,070	$	7,075	$	—	$	4,145	$	57
Commercial real estate		2,256		7,370		—		2,256		—
One-to-four family		1,012		1,066		—		1,017		6
Acquisition, development, and construction		6,535		7,435		—		7,415		144
Other		34,739		99,775		—		35,557		699

Total impaired loans with no related allowance	$	48,612	$	122,721	$	—	$	50,390	$	906

Impaired loans with an allowance recorded:
Multi-family	$	—	$	—	$	—	$	—	$	—
Commercial real estate		—		—		—		—		—
One-to-four family		—		—		—		—		—
Acquisition, development, and construction		—		—		—		—		—
Other		15,000		15,000		709		15,000		75

Total impaired loans with an allowance recorded	$	15,000	$	15,000	$	709	$	15,000	$	75

Total impaired loans:
Multi-family	$	4,070	$	7,075	$	—	$	4,145	$	57
Commercial real estate		2,256		7,370		—		2,256		—
One-to-four family		1,012		1,066		—		1,017		6
Acquisition, development, and construction		6,535		7,435		—		7,415		144
Other		49,739		114,775		709		50,057		774

Total impaired loans	$	63,612	$	137,721	$	709	$	65,390	$	981

The following table presents additional information about the Company’s impaired loans at December 31, 2018:


(in thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
Impaired loans with no related allowance:
Multi-family	$	4,220	$	7,168	$	—	$	6,114	$	340
Commercial real estate		2,256		7,371		—		3,234		—
One-to-four family		1,022		1,076		—		1,576		26
Acquisition, development, and construction		8,296		9,197		—		9,238		590
Other		36,375		101,701		—		42,984		3,057

Total impaired loans with no related allowance	$	52,169	$	126,513	$	—	$	63,146	$	4,013

Impaired loans with an allowance recorded:
Multi-family	$	—	$	—	$	—	$	—	$	—
Commercial real estate		—		—		—		—		—
One-to-four family		—		—		—		—		—
Acquisition, development, and construction		—		—		—		—		—
Other		—		—		—		20		—

Total impaired loans with an allowance recorded	$	—	$	—	$	—	$	20	$	—

Total impaired loans:
Multi-family	$	4,220	$	7,168	$	—	$	6,114	$	340
Commercial real estate		2,256		7,371		—		3,234		—
One-to-four family		1,022		1,076		—		1,576		26
Acquisition, development, and construction		8,296		9,197		—		9,238		590
Other		36,375		101,701		—		43,004		3,057

Total impaired loans	$	52,169	$	126,513	$	—	$	63,166	$	4,013

Note 7. Borrowed Funds

The following table summarizes the Company’s borrowed funds at the dates indicated:


(in thousands)	March 31, 2019		December 31, 2018
Wholesale Borrowings:
FHLB advances	$	11,803,661	$	13,053,661
Repurchase agreements		800,000		500,000

Total wholesale borrowings	$	12,603,661	$	13,553,661
Junior subordinated debentures		359,594		359,508
Subordinated notes		294,655		294,697

Total borrowed funds	$	13,257,910	$	14,207,866

The following table summarizes the Company’s repurchase agreements accounted for as secured borrowings at March 31, 2019:


	Remaining Contractual Maturity of the Agreements
(in thousands)	Overnight and Continuous		Up to 30 Days		30–90 Days		Greater than 90 Days
GSE obligations	$	—	$	—	$	—	$	800,000

Subordinated Notes

On November 6, 2018, the Company issued $300.0 million aggregate principal amount of our 5.90% Fixed-to-Floating Rate Subordinated Notes due 2028 (the “Notes”). The Notes will mature on November 6, 2028. From and including the date of original issuance to, but excluding November 6, 2023, the Notes will bear interest at an initial rate of 5.90% per annum, payable semi-annually in arrears on May 6 and November 6 of each year, commencing on May 6, 2019. Unless redeemed, from and including November 6, 2023 to but excluding the Maturity Date, the interest rate will reset quarterly to an annual interest rate equal to the then-current three-month LIBOR rate plus 278 basis points, payable quarterly in arrears on February 6, May 6, August 6 and November 6 of each year, commencing on February 6, 2024.

Junior Subordinated Debentures

The following junior subordinated debentures were outstanding at March 31, 2019:


Issuer	Interest Rate of Capital Securities and Debentures			Junior Subordinated Debentures Amount Outstanding		Capital Securities Amount Outstanding		Date of Original Issue	Stated Maturity	First Optional Redemption Date
				(dollars in thousands)
New York Community Capital Trust V (BONUSES^SMUnits)		6.000	%	$	145,668	$	139,317	Nov. 4, 2002	Nov. 1, 2051	Nov. 4, 2007 ⁽¹⁾
New York Community Capital Trust X		4.202			123,712		120,000	Dec. 14, 2006	Dec. 15, 2036	Dec. 15, 2011 ⁽²⁾
PennFed Capital Trust III		5.861			30,928		30,000	June 2, 2003	June 15, 2033	June 15, 2008 ⁽²⁾
New York Community Capital Trust XI		4.242			59,286		57,500	April 16, 2007	June 30, 2037	June 30, 2012 ⁽²⁾

Total junior subordinated debentures				$	359,594	$	346,817

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

(2)	Callable from this date forward.

At March 31, 2019 and December 31, 2018, the Company had $359.6 million and $359.5 million, respectively, of outstanding junior subordinated deferrable interest debentures (junior subordinated debentures) held by statutory business trusts (the “Trusts”) that issued guaranteed capital securities.

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

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 March 31,
	2019						2018
(in thousands)	Pension Benefits			Post- Retirement Benefits			Pension Benefits			Post- Retirement Benefits
Components of net periodic (credit) expense: ⁽¹⁾
Interest cost	$	1,415		$	128		$	1,271		$	128
Expected return on plan assets		(3,483	)		—			(4,035	)		—
Amortization of prior-service costs		—			(62	)		—			(62	)
Amortization of net actuarial loss		2,509			31			1,795			76

Net periodic (credit) expense	$	441		$	97		$	(969	)	$	142

(1)	Amounts are included in G&A expense on the Consolidated Statements of Income and Comprehensive Income.

The Company expects to contribute $1.2 million to its post-retirement plan to pay premiums and claims for the fiscal year ending December 31, 2019. The Company does not expect to make any contributions to its pension plan in 2019.

Note 9. Stock-Based Compensation

At March 31, 2019, the Company had a total of 3,297,368 shares available for grants as options, restricted stock, or other forms of related rights under the New York Community Bancorp, Inc. 2012 Stock Incentive Plan, which was approved by the Company’s shareholders at its annual meeting of shareholders held on June 7, 2012. The Company granted 1,743,240 shares of restricted stock during the three months ended March 31, 2019. The shares had an average fair value of $10.32 per share on the date of grant and a vesting period of five years. Compensation and benefits expense related to the restricted stock grants is recognized on a straight-line basis over the vesting period and totaled $7.9 million and $9.8 million, respectively, in the three months ended March 31, 2019 and 2018.

The following table provides a summary of activity with regard to restricted stock awards in the three months ended March 31, 2019:


	Number of Shares			Weighted Average Grant Date Fair Value
Unvested at beginning of year		6,904,388		$	14.74
Granted		1,743,240			10.32
Vested		(2,038,655	)		15.25
Canceled		(89,500	)		12.90

Unvested at end of period		6,519,473			13.43

As of March 31, 2019, unrecognized compensation cost relating to unvested restricted stock totaled $81.1 million. This amount will be recognized over a remaining weighted average period of 3.4 years.

Note 10. Fair Value Measurements

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

•

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

•

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

•

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

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

The following tables present assets and liabilities that were measured at fair value on a recurring basis as of March 31, 2019 and December 31, 2018, and that were included in the Company’s Consolidated Statements of Condition at those dates:


	Fair Value Measurements at March 31, 2019
(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		Total Fair Value
Assets:
Mortgage-Related Debt Securities Available for Sale:
GSE certificates	$	—	$	1,395,631	$	—	$	—	$	1,395,631
GSE CMOs		—		1,455,129		—		—		1,455,129

Total mortgage-related debt securities	$	—	$	2,850,760	$	—	$	—	$	2,850,760

Other Debt Securities Available for Sale:
U. S. Treasury obligations	$	29,662	$	—	$	—	$	—	$	29,662
GSE debentures		—		1,482,373		—		—		1,482,373
Asset-backed securities		—		384,674		—		—		384,674
Municipal bonds		—		67,198		—		—		67,198
Corporate bonds		—		860,055		—		—		860,055
Capital trust notes		—		49,922		—		—		49,922

Total other debt securities	$	29,662	$	2,844,222	$	—	$	—	$	2,873,884

Total debt securities available for sale	$	29,662	$	5,694,982	$	—	$	—	$	5,724,644

Equity securities:
Preferred stock	$	15,147	$	—	$	—	$	—	$	15,147
Mutual funds and common stock		—		16,981		—		—		16,981

Total equity securities	$	15,147	$	16,981	$	—	$	—	$	32,128

Total securities	$	44,809	$	5,711,963	$	—	$	—	$	5,756,772

Liabilities:
Derivative liabilities	$	—	$	—	$	—	$	—	$	—


	Fair Value Measurements at December 31, 2018
(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		Total Fair Value
Assets:
Mortgage-Related Debt Securities Available for Sale:
GSE certificates	$	—	$	1,707,521	$	—	$	—	$	1,707,521
GSE CMOs		—		1,252,761		—		—		1,252,761

Total mortgage-related debt securities	$	—	$	2,960,282	$	—	$	—	$	2,960,282

Other Debt Securities Available for Sale:
GSE debentures	$	—	$	1,328,927	$	—	$	—	$	1,328,927
Asset-backed securities		—		387,122		—		—		387,122
Municipal bonds		—		66,183		—		—		66,183
Corporate bonds		—		821,715		—		—		821,715
Capital trust notes		—		49,291		—		—		49,291

Total other debt securities	$	—	$	2,653,238	$	—	$	—	$	2,653,238

Total debt securities available for sale	$	—	$	5,613,520	$	—	$	—	$	5,613,520

Equity securities:
Preferred stock	$	13,846	$	—	$	—	$	—	$	13,846
Mutual funds and common stock		—		16,705		—		—		16,705

Total equity securities	$	13,846	$	16,705	$	—	$	—	$	30,551

Total securities	$	13,846	$	5,630,225	$	—	$	—	$	5,644,071

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

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

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

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

Assets Measured at Fair Value on a Non-Recurring Basis

Certain assets are measured at fair value on a non-recurring basis. Such instruments are subject to fair value adjustments under certain circumstances (e.g., when there is evidence of impairment). The following tables present assets and liabilities that were measured at fair value on a non-recurring basis as of March 31, 2019 and December 31, 2018, and that were included in the Company’s Consolidated Statements of Condition at those dates:


	Fair Value Measurements at March 31, 2019 Using
(in thousands)	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Fair Value
Certain impaired loans ⁽¹⁾	$	—	$	—	$	37,587	$	37,587
Other assets⁽²⁾		—		—		—		—

Total	$	—	$	—	$	37,587	$	37,587

(1)	Represents the fair value of impaired loans, based on the value of the collateral.

(2)	Represents the fair value of repossessed assets, based on the appraised value of the collateral subsequent to its initial classification as repossessed assets.


	Fair Value Measurements at December 31, 2018 Using
(in thousands)	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Fair Value
Certain impaired loans ⁽¹⁾	$	—	$	—	$	38,213	$	38,213
Other assets ⁽²⁾		—		—		1,265		1,265

Total	$	—	$	—	$	39,478	$	39,478

(1)	Represents the fair value of impaired loans, based on the value of the collateral.

(2)	Represents the fair value of repossessed assets, based on the appraised value of the collateral subsequent to its initial classification as repossessed assets.

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

Other Fair Value Disclosures

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

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

The following tables summarize the carrying values, estimated fair values, and fair value measurement levels of financial instruments that were not carried at fair value on the Company’s Consolidated Statements of Condition at March 31, 2019 and December 31, 2018:


	March 31, 2019
					Fair Value Measurement Using
(in thousands)	Carrying Value		Estimated Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)			Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)
Financial Assets:
Cash and cash equivalents	$	990,019	$	990,019	$	990,019		$	—		$	—
FHLB stock ⁽¹⁾		588,197		588,197		—			588,197			—
Loans, net		40,369,383		40,257,098		—			—			40,257,098
Financial Liabilities:
Deposits		31,601,125		31,617,404		18,833,346	⁽²⁾	$	12,784,058	⁽³⁾	$	—
Borrowed funds		13,257,910		13,282,486		—			13,282,486			—

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

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

(3)	Certificates of deposit.


	December 31, 2018
					Fair Value Measurement Using
(in thousands)	Carrying Value		Estimated Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)			Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)
Financial Assets:
Cash and cash equivalents	$	1,474,955	$	1,474,955	$	1,474,955		$	—		$	—
FHLB stock ⁽¹⁾		644,590		644,590		—			644,590			—
Loans, net		40,006,088		39,461,985		—			—			39,461,985
Financial Liabilities:
Deposits	$	30,764,430	$	30,748,729	$	18,570,108	⁽²⁾	$	12,178,621	⁽³⁾	$	—
Borrowed funds		14,207,866		14,136,526		—			14,136,526			—

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

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

(3)	Certificates of deposit.

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

Cash and Cash Equivalents

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

Securities

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

Federal Home Loan Bank Stock

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

Loans

The Company discloses the fair value of loans measured at amortized cost using an exit price notion. The Company determined the fair value on substantially all of its loans for disclosure purposes, on an individual loan basis. The discount rates reflect current market rates for loans with similar terms to borrowers having similar credit quality on an exit price basis. The estimated fair values of non-performing mortgage and other loans are based on recent collateral appraisals. For those loans where a discounted cash flow technique was not considered reliable, the Company used a quoted market price for each individual loan.

Deposits

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

Borrowed Funds

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

Derivative Financial Instruments

Derivatives are reported at fair value utilizing Level 2 inputs. The fair values of interest rate swaps are based on a valuation model that uses primarily observable inputs, such as benchmark yield curves and interest rate spreads.

Off-Balance Sheet Financial Instruments

The fair values of commitments to extend credit and unadvanced lines of credit are estimated based on an analysis of the interest rates and fees currently charged to enter into similar transactions, considering the remaining terms of the commitments and the creditworthiness of the potential borrowers. The estimated fair values of such off-balance sheet financial instruments were insignificant at March 31, 2019 and December 31, 2018.

Note 11. Leases

The Company determines if an arrangement is a lease at inception. Operating leases are included in operating lease right-of-use assets and operating lease liabilities in the Consolidated Statements of Condition.

ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As most leases do not provide an implicit rate, the incremental borrowing rate (FHLB borrowing rate) is used based on the information available at adoption date in determining the present value of lease payments. The implicit rate is used when readily determinable. The operating lease ROU asset is measured at cost, which includes the initial measurement of the lease liability, prepaid rent and initial direct costs incurred by the Company, less incentives received. The lease terms include options to extend the lease when it is reasonably certain that we will exercise that option. For the vast majority of the Company’s leases, we are reasonably certain we will exercise our options to renew to the end of all renewal option periods. As such, substantially all of our future options to extend the leases have been included in the lease liability and ROU assets.

Variable costs such as the proportionate share of actual costs for utilities, common area maintenance, property taxes and insurance are not included in the lease liability and are recognized in the period in which they are incurred. Amortization of the ROU assets for the three months ended March 31, 2019 was $11.7 million (included in this amount is $7.3 million that was due to the closing of certain locations).

The Company has operating leases for corporate offices, branch locations and certain equipment. The Company’s leases have remaining lease terms of one year to approximately 25 years, the vast majority of which include one or more options to extend the leases for up to five years resulting in lease terms up to 40 years.

The components of lease expense were as follows:


(in thousands)	For the Three Months Ended March 31, 2019
Components of Lease Expense:
Operating lease cost	$	7,348
Sublease income		(22	)

Total lease cost	$	7,326

Supplemental cash flow information related to the leases for the following period:


(in thousands)	For the Three Months Ended March 31, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	7,348

Supplemental balance sheet information related to the leases for the following period:


(in thousands, except lease term and discount rate)	March 31, 2019
Operating Leases:
Operating lease right-of-use assets	$	312,948
Operating lease liabilities		312,628
Weighted average remaining lease term		17.4 years
Weighted average discount rate		3.25	%

Maturities of lease liabilities:



(in thousands)
2019	$	21,836
2020		28,319
2021		27,677
2022		26,971
2023		26,541
Thereafter		291,362

Total lease payments		422,706
Less: imputed interest		(110,078	)

Total present value of lease liabilities	$	312,628

As previously disclosed in the Company’s 2018 Form 10-K under the prior guidance of ASC 840, at December 31, 2018, the Company was obligated under various non-cancelable operating lease and license agreements with renewal options on properties used primarily for branch operations. The agreements contain periodic escalation clauses that provide for increases in the annual rents, commencing at various times during the lives of the agreements, which are primarily based on increases in real estate taxes and cost-of-living indices. The remaining projected minimum annual rental commitments under these agreements, exclusive of taxes and other charges, are summarized as follows:


(in thousands)
2019	$	30,322
2020		23,399
2021		19,736
2022		16,552
2023 and thereafter		55,525

Total minimum future rentals	$	145,534

Note 12. Derivative and Hedging Activities

The Company’s derivative financial instruments consist of interest rate swaps. The Company is exposed to certain risks arising from both its business operations and economic conditions. The Company principally manages its exposure to a wide variety of business and operational risks through management of its core business activities. The Company manages economic risks, including interest rate and liquidity risks, primarily by managing the amount, sources, and duration of its assets and liabilities and, from time to time, the use of derivative financial instruments. Specifically, the Company enters into derivative financial instruments to manage exposures that arise from business activities that result in the payment of future known and uncertain cash amounts, the value of which are determined by interest rates. The Company’s derivative financial instruments are used to manage differences in the amount, timing, and duration of the Company’s known or expected cash receipts and its known or expected cash payments principally related to the Company’s pools of fixed-rate assets.

The Company is exposed to changes in the fair value of certain of its fixed-rate assets due to changes in benchmark interest rates. The Company uses interest rate swaps to manage its exposure to changes in fair value on these instruments attributable to changes in the designated benchmark interest rate. Interest rate swaps designated as fair value hedges involve the payment of fixed-rate amounts to a counterparty in exchange for the Company receiving variable-rate payments over the life of the agreements without the exchange of the underlying notional amount. Such derivatives were used to hedge the changes in fair value of certain of its pools of prepayable fixed rate assets. For derivatives designated and that qualify as fair value hedges, the gain or loss on the derivative as well as the offsetting loss or gain on the hedged item attributable to the hedged risk are recognized in interest income.

During the three months ended March 31, 2019, the Company entered into an interest rate swap with a notional amount of $2.0 billion to hedge certain real estate loans. For the three months ended March 31, 2019, the floating rate received related to the net settlement of this interest rate swap was in excess of the fixed rate payments. As such, interest income from Mortgage and Other Loans in the accompanying Consolidated Statements of Income and Comprehensive Income was increased by $239,000, net, for the three months ended March 31, 2019.

As of March 31, 2019, the following amounts were recorded on the balance sheet related to cumulative basis adjustment for fair value hedges. The Company did not have any derivative instruments of December 31, 2018:


(in thousands)	March 31, 2019
Line Item in the Consolidated Statement of Financial Condition in which the Hedge Item is Included	Carrying Amount of the Hedged Assets		Cumulative Amount of Fair Value Hedging Adjustments Included in the Carrying Amount of the Hedged Assets
Total loans and leases, net ⁽¹⁾	$	2,018,532	$	18,532

(1)

These amounts include the amortized cost basis of closed portfolios used to designated hedging relationships in which the hedged item is the last layer expected to be remaining at the end of the hedging relationship. At March 31, 2019, the amortized cost basis of the closed portfolios used in these hedging relationships was $ 4.7 billion; the cumulative basis adjustments associated with these hedging relationships was $18.5 million; and the amount of the designated hedged items was $2.0 billion.

The following table sets forth information regarding the Company’s derivative financial instruments at March 31, 2019. The Company had no derivative financial instruments at December 31, 2018.


	March 31, 2019
			Fair Value
(in thousands)	Notional Amount		Other Assets		Other Liabilities
Derivatives designated as hedging instruments:
Fair value hedge interest rate swap	$	2,000,000	$	—	$	—

Total derivatives designated as hedging instruments	$	2,000,000	$	—	$	—

Title VII of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”) requires all standardized derivatives, including most interest rate swaps, to be submitted for clearing to central counterparties to reduce counterparty risk. Two of the central counterparties are the Chicago Mercantile Exchange (“CME”) and the London Clearing House (“LCH”). As of March 31, 2019, all of the Company’s $2.0 billion notional derivative contracts were cleared on the LCH. Variation margin payments on derivatives cleared through the LCH are accounted for as legal settlement. For derivatives cleared through LCH, the net gain (loss) position includes the variation margin amounts as settlement of the derivative and not collateral against the fair value of the derivative.

The Company’s exposure is limited to the value of the derivative contracts in a gain position less any collateral held and plus any collateral posted. When there is a net negative exposure, we consider our exposure to the counterparty to be zero. At March 31, 2019, the Company had a net negative exposure.

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


	For the Three Months Ended March 31,
(in thousands)	2019			2018
Derivative – interest rate swap:
Interest income	$	(18,532	)	$	—
Hedged item – loans:
Interest income	$	18,532		$	—

Note 13. Impact of Recent Accounting Pronouncements

Recently Adopted Accounting Standards

The Company has adopted ASU No. 2018-16, Derivatives and Hedging (Topic 815)—Inclusion of the Secured Overnight Financing Rate (SOFR) Overnight Index Swap (OIS) Rate as a Benchmark Interest Rate for Hedge Accounting Purposes, effective on its issuance date of October 25, 2018. The purpose of ASU 2018-16 is to permit the use of the OIS rate based on SOFR as a U.S. benchmark interest rate for hedge accounting purposes under Topic 815. The amendments in ASU 2018-16 are required to be applied prospectively for qualifying new or redesignated hedging relationships entered into on or after the date of adoption. The adoption of ASU No. 2018-16 did not have a material impact on the Company’s Consolidated Statements of Condition, results of operations, or cash flows.

The Company early adopted ASU No. 2018-15, Intangibles – Goodwill and Other – Internal Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract on January 1, 2019. ASU 2018-15 aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). The accounting for the service element of a hosting arrangement that is a service contract is not affected by the amendment. The adoption of ASU 2018-15 did not have a material effect on the Company’s Consolidated Statements of Conditions, results of operations, or cash flows.

The Company adopted ASU No. 2018-02, Income Statement-Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income, effective January 1, 2018. ASU No. 2018-02 addresses a narrow-scope financial reporting issue that arose as a consequence of the enactment of the Tax Cuts and Jobs Act of 2017. ASU No. 2018-02 permits an election to reclassify from accumulated other comprehensive income (loss) to retained earnings the standard tax effects resulting from the difference between the historical federal corporate income tax rate of 35% and the newly enacted 21% federal corporate income tax rate. Effective January 1, 2018, the Company recorded a reclassification adjustment of $2.5 million decreasing AOCL and increasing retained earnings. The Company’s only components of AOCL are the fair value adjustment for securities available for sale and the tax effected related pension and post-retirement obligations.

The Company adopted ASU No. 2017-12, Targeted Improvements to Accounting for Hedging Activities, effective January 1, 2018. ASU No. 2017-12 changes the recognition and presentation requirements as well as the cost and complexity of applying hedge accounting by easing the requirements for effectiveness testing and hedge documentation. As of December 31, 2018, the Company had no identified accounting hedges in place, and as such, adoption of ASU No. 2017-12 had no impact on the Company’s Consolidated Statements of Condition, results of operations, or cash flows.

The Company adopted ASU No. 2017-09, Compensation—Stock Compensation (Topic 718) as of January 1, 2018. The ASU’s amendments are applied prospectively to awards modified on or after the effective date. ASU No. 2017-09 clarifies when changes to the terms or conditions of a share-based payment award should be accounted for as a modification. Modification accounting is applied only if the fair value, the vesting conditions, and the classification of the award (as an equity or liability instrument) change as a result of the change in terms or conditions. The adoption of ASU No. 2017-09 did not have an effect on the Company’s Consolidated Statements of Condition, results of operations, or cash flows.

The Company adopted ASU No. 2017-08, Receivables—Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities. ASU No. 2017-08 specifies that the premium amortization period ends at the earliest call date, rather than the contractual maturity date, for purchased non-contingently callable debt securities. Shortening the amortization period is generally expected to more closely align the interest income recognition with the expectations incorporated in the market pricing of the underlying securities. The adoption of ASU No. 2017-08 on January 1, 2019 did not have a material effect on the Company’s Consolidated Statements of Condition, results of operations, or cash flows.

The Company adopted ASU No. 2017-07, Improving the Presentation of Net Periodic Pension Cost and Net Periodic Post-retirement Benefit Cost, on January 1, 2018. ASU No. 2017-07 requires companies to present the service cost component of net

benefit cost in the income statement line items where they report compensation cost, and all other components of net benefit cost in the income statement separately from the service cost component and outside of operating income, if this subtotal is presented. Additionally, the service cost component is the only component that can be capitalized. The standard required retrospective application for the amendments related to the presentation of the service cost component and other components of net benefit cost, and prospective application for the amendments related to the capitalization requirements for the service cost components of net benefit cost. The adoption of ASU No. 2017-07 did not have a material effect on the Company’s Consolidated Statements of Condition, results of operations, or cash flows.

The Company adopted ASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash, on January 1, 2018, with retrospective application. ASU No. 2016-18 requires that the reconciliation of the beginning-of-period and end-of-period cash and cash equivalent amounts shown on the statement of cash flows include restricted cash and restricted cash equivalents. If restricted cash and restricted cash equivalents are presented separately from cash and cash equivalents on the balance sheet, entities are required to reconcile the amounts presented on the statement of cash flows to the amounts on the balance sheet. Entities are also required to disclose information regarding the nature of the restrictions. The adoption of ASU No. 2016-18 did not have an impact on the Company’s financial position or results of operations, or cash flows.

The Company adopted ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments on January 1, 2018 with retrospective application. ASU No. 2016-15 addresses the following cash flow issues: debt prepayment or debt extinguishment costs; settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing; contingent consideration payments made after a business combination; proceeds from the settlement of insurance claims; proceeds from the settlement of corporate-owned life insurance policies (including BOLI policies); distributions received from equity method investees; beneficial interests in securitization transactions; and separately identifiable cash flows and application of the predominance principle. The adoption of ASU No. 2016-15 did not have a material effect on the Company’s Consolidated Statements of Condition, results of operations, or cash flows.

The Company adopted ASU No. 2016-02, Leases (Topic 842), and its subsequent amendments to the ASU: ASU No. 2018-01, Leases (Topic 842): Land Easement Practical Expedient Transition to Topic 842; ASU 2018-10, Codification Improvements to Topic 842, Leases; ASU 2018-11, Leases (Topic 842): Targeted Improvements; ASU 2018-20, Narrow-Scope Improvements for Lessors; and ASU 2019-01, Leases: Codification Improvements on January 1, 2019, using the modified retrospective approach and utilizing the effective date as its date of initial application, for which prior periods are presented in accordance with the previous guidance in ASC 840, Leases. Topic 842 is intended to improve financial reporting about leasing transactions and the key provision impacting the Company is the requirement for a lessee to record a right-of-use asset and a liability, which represents the obligation to make lease payments for long-term operating leases. Additionally, ASU 2016-02 includes quantitative and qualitative disclosures required by lessees and lessors to help financial statement users better understand the amount, timing, and uncertainty of cash flows arising from leases. Topic 842 includes a number of optional practical expedients that entities may elect to apply. The Company adopted the practical expedients of: not reevaluating whether or not a contract contains a lease; retaining current lease classification; not reassessing initial direct costs for existing leases; and not reassessing existing land easements that were not previously accounted for as leases under current lease accounting rules. Accordingly, previously reported financial statements, including footnote disclosures, have not been recast to reflect the application of ASU 2016-02 to all comparative periods presented. The adoption of ASU 2016-02, as reflected in Note 11, did not have a material impact on the Company’s Consolidated Statements of Condition, results of operations, or cash flows.

The Company adopted ASU No. 2016-01, Financial Instruments—Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities by means of a cumulative-effect adjustment as of January 1, 2018. ASU No. 2016-01 provides targeted improvements to GAAP including, amongst other improvements, the requirement for equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income, thus eliminating eligibility for the available-for-sale category. FHLB stock, however, is not in the scope of ASU No. 2016-01 and will continue to be presented at historical cost. Upon adoption, an immaterial amount of unrealized losses related to the in-scope equity securities was reclassified from other comprehensive loss to retained earnings in 2018 and equity investments were reclassified from securities available for sale to other assets with their related market value changes reflected in earnings.

The Company adopted ASU No. 2014-09, Revenue from Contracts with Customers and its amendments which established ASC Topic 606, Revenue from Contracts with Customers, on January 1, 2018 using the modified retrospective approach. In summary, the core principle of ASC Topic 606 is that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The Company’s revenue streams that are covered by ASC Topic 606 are primarily fees earned in connection with performing services for our customers such as investment advisor fees, wire transfer fees, and bounced check fees. Such fees are either satisfied over time if the service is performed over a period of time (as with investment advisor fees or safe deposit

box rental fees), or satisfied at a point in time (as with wire transfer fees and bounced check fees). The Company recognizes fees for services performed over the time period to which the fees relate. The Company recognizes fees earned at a point in time on the day the fee is earned. The modified retrospective approach includes presenting the cumulative effect of initial application, if any, along with supplementary disclosures, if any. The Company did not record a cumulative effect adjustment upon adoption of the standard.

Recently Issued Accounting Standards

In January 2017, the FASB issued ASU No. 2017-04, Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. ASU No. 2017-04 eliminates the second step of the goodwill impairment test which requires an entity to determine the implied fair value of the reporting unit’s goodwill. Instead, an entity will recognize an impairment loss if the carrying value of the net assets assigned to the reporting unit exceeds the fair value of the reporting unit, with the impairment loss not to exceed the amount of goodwill recorded. ASU No. 2017-04 does not amend the optional qualitative assessment of goodwill impairment. The Company plans to adopt ASU No. 2017-04 prospectively beginning January 1, 2020 and the impact of its adoption on the Company’s Consolidated Statements of Condition, results of operations, or cash flows will be dependent upon goodwill impairment determinations made after that date.

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. ASU No. 2016-13 amends guidance on reporting credit losses for assets held on an amortized cost basis and available-for-sale debt securities. For assets held at amortized cost, ASU No. 2016-13 eliminates the probable initial recognition threshold in current GAAP and, instead, requires an entity to reflect its current estimate of all expected credit losses. Current GAAP requires an “incurred loss” methodology for recognizing credit losses that delays recognition until it is probable a loss has been incurred. The amendments in ASU No. 2016-13 replace the incurred loss impairment methodology in current GAAP with a methodology that reflects the measurement of expected credit losses based on relevant information about past events, including historical loss experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amounts. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial assets to present the net amount expected to be collected. For available-for-sale debt securities, credit losses should be measured in a manner similar to current GAAP; however, ASU No. 2016-13 will require that credit losses be presented as an allowance rather than as a write-down. The amendments affect loans, debt securities, trade receivables, net investments in leases, off-balance sheet credit exposures, reinsurance receivables, and any other financial assets not excluded from the scope that have the contractual right to receive cash.

The Company will adopt ASU No. 2016-13 as of January 1, 2020 on a modified retrospective basis with a cumulative-effect adjustment to retained earnings as of the adoption date. However, a prospective transition approach is required for debt securities for which an OTTI had been recognized before the effective date. The effect of a prospective transition approach is to maintain the same amortized cost basis before and after the effective date of ASU No. 2016-13. Amounts previously recognized in accumulated other comprehensive income (loss) as of the date of adoption that relate to improvements in cash flows expected to be collected will continue to be accreted into income over the remaining life of the asset. Recoveries of amounts previously written off relating to improvements in cash flows after the date of adoption will be recorded in earnings when received. Financial assets for which the guidance in Subtopic 310-30, Receivables—Loans and Debt Securities Acquired with Deteriorated Credit Quality (“PCD assets”), has previously been applied, will prospectively apply the guidance in ASU No. 2016-13 for PCD assets. A prospective transition approach will be used for PCD assets where upon adoption, the amortized cost basis will be adjusted to reflect the addition of the allowance for credit losses. This transition relief will avoid the need for a reporting entity to reassess its purchased financial assets that exist as of the date of adoption to determine whether it would have met at acquisition the new criteria of more-than insignificant credit deterioration since origination. The transition relief also will allow an entity to accrete the remaining noncredit discount (based on the revised amortized cost basis) into interest income at the effective interest rate at the adoption date of ASU No. 2016-13. The same transition requirements are be applied to beneficial interests that previously applied Subtopic 310-30 or have a significant difference between contractual cash flows and expected cash flows.

The Company is evaluating ASU No. 2016-13 and has a working group with multiple members from applicable departments to evaluate the requirements of the new standard, plan for loss modeling requirements consistent with lifetime expected loss estimates, and assess the impact it will have on current processes. This evaluation includes a review of existing credit models to identify areas where existing credit models used to comply with other regulatory requirements may be leveraged and areas where new models may be required. The adoption of ASU No. 2016-13 could have a material effect on the Company’s Consolidated Statements of Condition and results of operations. The extent of the impact upon adoption will likely depend on the characteristics of the Company’s loan portfolio and economic conditions at that date, as well as forecasted conditions thereafter.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement. The purpose of ASU 2018-13 is to improve the effectiveness of disclosures in the notes to financial statements by facilitating clear communication of the information required by GAAP that is

most important to users of each entity’s financial statements. The amendments in ASU 2018-13 are effective for the Company as of January 1, 2020. Early adoption is permitted and an entity is permitted to early adopt any removed or modified disclosures upon issuance of the ASU and delay adoption of the additional disclosures until their effective date. The amendments removed the disclosure requirements for transfers between Levels 1 and 2 of the fair value hierarchy, the disclosure of the policy for timing of transfers between levels of the fair value hierarchy, and the disclosure of the valuation processes for Level 3 fair value measurements. Additionally, the amendments modified the disclosure requirements for investments in certain entities that calculate net asset value and measurement uncertainty. Finally, the amendments added disclosure requirements for the changes in unrealized gains and losses included in other comprehensive income for recurring Level 3 fair value measurements and the range and weighted average of significant unobservable inputs used to develop Level 3 measurements. The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. The adoption of ASU 2018-13 is not expected to have a material effect on the Company’s Consolidated Statements of Condition, results of operations, or cash flows.

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

For the purpose of this Annual Report on Form 10-K, the words “we,” “us,” “our,” and the “Company” are used to refer to New York Community Bancorp, Inc. and our consolidated subsidiary, New York Community Bank (the “Bank”).

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING LANGUAGE

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

Forward-looking statements, which are based on certain assumptions and describe future plans, strategies, and expectations of the Company, are generally identified by use of the words “anticipate,” “believe,” “estimate,” “expect,” “intend,” “plan,” “project,” “seek,” “strive,” “try,” or future or conditional verbs such as “will,” “would,” “should,” “could,” “may,” or similar expressions. Although we believe that our plans, intentions, and expectations as reflected in these forward-looking statements are reasonable, we can give no assurance that they will be achieved or realized.

Our ability to predict results or the actual effects of our plans and strategies is inherently uncertain. Accordingly, actual results, performance, or achievements could differ materially from those contemplated, expressed, or implied by the forward-looking statements contained in this report.

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

•

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

•

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

•

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

•

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

•

any uncertainty relating to the LIBOR calculation process and the potential phasing out of LIBOR after 2021;

•

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

•

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

•

heightened regulatory focus on CRE concentrations by regulators;

•

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

•

changes in deposit flows and wholesale borrowing facilities;

•

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

•

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

•

our ability to obtain timely shareholder and regulatory approvals of any merger transactions or corporate restructurings we may propose;

•

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

•

potential exposure to unknown or contingent liabilities of companies we have acquired, may acquire, or target for acquisition;

•

the ability to pay future dividends at currently expected rates;

•

the ability to hire and retain key personnel;

•

the ability to attract new customers and retain existing ones in the manner anticipated;

•

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

•

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

•

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

•

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

•

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

•

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

•

the ability to keep pace with, and implement on a timely basis, technological changes;

•

changes in legislation, regulation, policies, or administrative practices, whether by judicial, governmental, or legislative action, and other changes pertaining to banking, securities, taxation, rent regulation and housing, financial accounting and reporting, environmental protection, insurance, and the ability to comply with such changes in a timely manner;

•

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

•

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

•

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

•

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

•

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

•

natural disasters, war, or terrorist activities; and

•

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

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

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

See Part II, Item 1A, Risk Factors, in this report and Part I, Item 1A, Risk Factors, in our Form 10-K for the year ended December 31, 2018 for a further discussion of important risk factors that could cause actual results to differ materially from our forward-looking statements.

Readers should not place undue reliance on these forward-looking statements, which reflect our expectations only as of the date of this report. We do not assume any obligation to revise or update these forward-looking statements except as may be required by law.

RECONCILIATIONS OF STOCKHOLDERS’ EQUITY, COMMON STOCKHOLDERS’ EQUITY,

AND TANGIBLE COMMON STOCKHOLDERS’ EQUITY;

TOTAL ASSETS AND TANGIBLE ASSETS; AND THE RELATED MEASURES

(unaudited)

While stockholders’ equity, common stockholders’ equity, total assets, and book value per common share are financial measures that are recorded in accordance with GAAP, tangible common stockholders’ equity, tangible assets, and tangible book value per common share are not. It is management’s belief that these non-GAAP measures should be disclosed in this report and others we issue for the following reasons:

Tangible common stockholders’ equity is an important indication of the Company’s ability to grow organically and through business combinations, as well as its ability to pay dividends and to engage in various capital management strategies.

Tangible book value per common share and the ratio of tangible common stockholders’ equity to tangible assets are among the capital measures considered by current and prospective investors, both independent of, and in comparison with, the Company’s peers.

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

Reconciliations of our stockholders’ equity, common stockholders’ equity, and tangible common stockholders’ equity; our total assets and tangible assets; and the related financial measures for the respective periods follow:


	At or for the
	Three Months Ended
	Mar. 31,			Dec. 31,			Mar. 31,
(dollars in thousands)	2019			2018			2018
Total Stockholders’ Equity	$	6,629,070		$	6,655,235		$	6,780,717
Less: Goodwill		(2,426,379	)		(2,436,131	)		(2,436,131	)
Preferred stock		(502,840	)		(502,840	)		(502,840	)

Tangible common stockholders’ equity	$	3,699,851		$	3,716,264		$	3,841,746

Total Assets	$	52,131,046		$	51,899,376		$	49,654,874
Less: Goodwill		(2,426,379	)		(2,436,131	)		(2,436,131	)

Tangible assets	$	49,704,667		$	49,463,245		$	47,218,743

Average Common Stockholders’ Equity	$	6,104,442		$	6,244,977		$	6,287,730
Less: Average goodwill		(2,435,806	)		(2,436,131	)		(2,436,131	)

Average tangible common stockholders’ equity	$	3,668,636		$	3,808,846		$	3,851,599

Average Assets	$	51,617,557		$	51,779,002		$	48,862,383
Less: Average goodwill		(2,435,806	)		(2,436,131	)		(2,436,131	)

Average tangible assets	$	49,181,751		$	49,342,871		$	46,426,252
Net Income Available to Common Shareholders	$	89,370		$	93,532		$	98,345

GAAP MEASURES:
Return on average assets (1)		0.76	%		0.79	%		0.87	%
Return on average common stockholders’ equity (2)		5.86			5.99			6.26
Book value per common share	$	13.11		$	12.99		$	12.80
Common stockholders’ equity to total assets		11.75			11.85			12.64

NON-GAAP MEASURES:
Return on average tangible assets (1)		0.79	%		0.82	%		0.92	%
Return on average tangible common stockholders’ equity (2)		9.74			9.82			10.21
Tangible book value per common share	$	7.92		$	7.85		$	7.83
Tangible common stockholders’ equity to tangible assets		7.44			7.51			8.14

(1)	To calculate return on average assets for a period, we divide net income generated during that period by average assets recorded during that period. To calculate return on average tangible assets for a period, we divide net income by average tangible assets recorded during that period.

(2)

To calculate return on average common stockholders’ equity for a period, we divide net income available to common shareholders generated during that period by average common stockholders’ equity recorded during that period. To calculate return on average tangible common stockholders’ equity for a period, we divide net income available to common shareholders generated during that period by average tangible common stockholders’ equity recorded during that period.

Although they are not calculated in accordance with GAAP, we believe that our non-GAAP earnings are an important indication of our ability to generate earnings through our fundamental business operations. Since they exclude the effects of certain items which the Company does not view as being related to its fundamental business operations (in this case, the aforementioned certain expenses, and the resultant adjusted efficiency ratio which occurred during the quarter-ended March 31, 2019), we believe that our non-GAAP earnings, non-GAAP non-interest expenses and adjusted efficiency ratio provide useful supplemental information to both management and investors in evaluating our financial performance for the three months ended March 31, 2019. Our non-GAAP earnings, non-GAAP non-interest expenses and adjusted efficiency ratio provide should not be considered in isolation or as a substitute for GAAP earnings, GAAP non-interest expenses and efficiency ratio which are calculated in accordance with GAAP. Moreover, the manner in which we calculate our non-GAAP earnings, non-GAAP non-interest expenses and adjusted efficiency ratio may differ from that of other companies also reporting non-GAAP results.

Executive Summary

New York Community Bancorp, Inc. is the holding company for New York Community Bank. At March 31, 2019, we had total assets of $52.1 billion, total loans of $40.4 billion, deposits of $31.6 billion, and total stockholders’ equity of $6.6 billion.

Chartered in the State of New York, the Community Bank is subject to regulations by the FDIC, the CFPB, and the NYSDFS. In addition, the holding company is subject to regulation by the FRB, the SEC, and to the requirements of the NYSE, where shares of our common stock are traded under the symbol “NYCB” and shares of our preferred stock trade under the symbol “NYCB PR A.”

Reflecting our growth through a series of acquisitions, the Company currently operates 240 branches through eight local divisions, each with a history of service and strength: Queens County Savings Bank, Roslyn Savings Bank, Richmond County Savings Bank, Roosevelt Savings Bank, and Atlantic Bank in New York; Garden State Community Bank in New Jersey; Ohio Savings Bank in Ohio; and AmTrust Bank in Arizona and Florida.

Now in our 26th year as a publicly traded company, our mission is to provide our shareholders with a solid return on their investment by producing a strong financial performance, adhering to conservative underwriting standards, maintaining a solid capital position, and engaging in corporate strategies that enhance the value of our shares.

For the three months ended March 31, 2019, the Company reported net income of $97.6 million, down $4.2 million or 4.1% from the $101.7 million we reported for the three months ended December 31, 2018 and down, $9.0 million or 8.4% from the three months ended March 31, 2018. Net income available to common shareholders for the three months ended March 31, 2019 was $89.4 million, also down $4.2 million or 4.4% from the $93.5 million reported for the three months ended December 31, 2018 and it also declined $9.0 million or 9.1% from the three months ended March 31, 2018.

Diluted earnings per common share for the three months ended March 31, 2019 were $0.19, unchanged from the diluted earnings per common share we reported for the three months ended December 31, 2018 and compared to the $0.20 reported for the three months ended March 31, 2018.

The key trends in the quarter were:

Successful Implementation of Expense Reduction Strategy

Total non-interest expense for the three months ended March 31, 2019, was $138.8 million, up $3.8 million or 2.8% compared to the three months ended December 31, 2018. However, included in the current quarter’s results were certain items, which together totaled approximately $9.0 million. These items include $3.5 million in employee severance costs and $5.5 million in branch rationalization costs.

Excluding these two items, total non-interest expenses, on a non-GAAP basis, would have totaled $129.7 million during the current first quarter, down $5.2 million or 3.9% compared to the previous quarter. The efficiency ratio for the current first quarter of 2019 was 52.15% compared to 49.92% for the fourth quarter of 2018 and 47.45% for the first quarter of 2018. Excluding the two items referenced above, the adjusted efficiency ratio for the first quarter of 2019 would have been 48.75%, down 117 bp compared to the previous quarter, but up 130 bp compared to the year-ago quarter.

Strong Deposit Growth

During the first quarter of 2019, the Company continued to execute on its organic deposit growth strategy. For the three months ended March 31, 2019, total deposits increased $836.7 million or 10.9% on an annualized basis to $31.6 billion compared to the three months ended December 31, 2018. The majority of this growth occurred in the CD category. CDs rose $573.5 million or 18.8% annualized compared to the prior quarter. In addition to the strong CD growth, we also experienced solid growth in non-interest bearing deposits and in savings accounts, while the balance of non-interest bearing checking and money market accounts declined modestly.

Non-interest bearing accounts rose $193.1 million or 32.2% annualized to $2.6 billion, while savings accounts increased $117.6 million or 10.1% annualized to $4.8 billion.

Loan Growth Increases

Total loans held for investment rose $360.1 million or 3.6% annualized to $40.5 billion. The current quarter’s loan growth was driven by growth in our C&I portfolio, particularly the specialty finance business, as well as growth in the multi-family and CRE portfolios. Total C&I loans increased $316.6 million or 13.3% (not annualized) to $2.7 billion. This growth was largely due to growth in the specialty finance loan portfolio. This portfolio increased $309.0 million or 16.1% (not annualized) to $2.2 billion compared to the previous quarter. CRE loans increased $80.4 million or 4.6% annualized to $7.1 billion, while our multi-family portfolio increased $48.9 million to $30.0 billion, up 1.0% annualized compared to the balances at December 31, 2018.

Recent Events

Declaration of Dividend on Common Shares

On April 29, 2019, our Board of Directors declared a quarterly cash dividend on the Company’s common stock of $0.17 per share. The dividend is payable on May 28, 2019 to common shareholders of record as of May 14, 2019.

Branch Rationalization Initiative

As part of our ongoing expense reduction strategy, over the past year, the Company undertook a thorough analysis of its existing five-state branch network, resulting in the closing of 12 branches effective as of April 30, 2019. During the current first quarter, the Company incurred $5.5 million of expenses due to this initiative, largely related to the cost of exiting leases on certain branch locations.

Strategic Partnership with Fiserv

During the first quarter, we entered into an agreement with Fiserv Inc., (NASDAQ: FISV), a global leader in financial services technology solutions, whereby Fiserv will provide the Company with a new enterprise-wide banking platform, including a new core account processing system. The conversion is expected to occur during the fourth quarter of the year and is expected to result in substantial cost savings and efficiencies beginning in 2020.

Critical Accounting Policies

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

We have identified the following to be critical accounting policies: the determination of the allowances for loan losses; and the determination of the amount, if any, of goodwill impairment.

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

Allowance for Loan Losses

The allowance for loan losses represents our estimate of probable and estimable losses inherent in the loan portfolio as of the date of the balance sheet. Losses on loans are charged against, and recoveries of losses on loans are credited back to, the allowance for loan losses.

The methodology used for the allocation of the allowance for loan losses at March 31, 2019 and December 31, 2018 was generally comparable, whereby the Bank segregated their loss factors (used for both criticized and non-criticized loans) into a component that was primarily based on historical loss rates and a component that was primarily based on other qualitative factors that are probable to affect loan collectability. In determining the allowance for loan losses, management considers the Bank’s current business strategies and credit processes, including compliance with applicable regulatory guidelines and with guidelines approved by the Boards of Directors with regard to credit limitations, loan approvals, underwriting criteria, and loan workout procedures.

The allowance for loan losses is established based on management’s evaluation of incurred losses in the portfolio in accordance with GAAP, and is comprised of both specific valuation allowances and a general valuation allowance.

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

We primarily measure impairment on an individual loan and determine the extent to which a specific valuation allowance is necessary by comparing the loan’s outstanding balance to either the fair value of the collateral, less the estimated cost to sell,

or the present value of expected cash flows, discounted at the loan’s effective interest rate. Generally, when the fair value of the collateral, net of the estimated cost to sell, or the present value of the expected cash flows is less than the recorded investment in the loan, any shortfall is promptly charged off.

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

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

•

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

•

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

•

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

•

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

•

Changes in the quality of our loan review system;

•

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

•

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

•

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

•

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

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

The historical loss period we use to determine the allowance for loan losses on loans is a rolling 33-quarter look-back period, as we believe this produces an appropriate reflection of our historical loss experience.

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

•

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

•

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

•

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

•

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

In order to determine their overall adequacy, the loan loss allowance is reviewed quarterly by management Board Committees and the Board of Directors of the Bank, as applicable.

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

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

An allowance for unfunded commitments is maintained separate from the allowance for loan losses and is included in Other liabilities in the Consolidated Statements of Condition.

See Note 6, Allowances for Loan Losses for a further discussion of our allowance for loan losses.

Goodwill Impairment

We have significant intangible assets related to goodwill. In connection with our acquisitions, assets acquired and liabilities assumed are recorded at their estimated fair values. Goodwill represents the excess of the purchase price of our acquisitions over the fair value of identifiable net assets acquired, including other identified intangible assets. Our goodwill is evaluated for impairment annually as of year-end or more frequently if conditions exist that indicate that the value may be impaired. We test our goodwill for impairment at the reporting unit level. These impairment evaluations are performed by comparing the carrying value of the goodwill of a reporting unit to its estimated fair value. We allocate goodwill to reporting units based on the reporting unit expected to benefit from the business combination. We had previously identified two reporting units: our Banking Operations reporting unit and our Residential Mortgage Banking reporting unit. On September 29, 2017, the Company sold the Residential Mortgage Banking reporting unit. Our reporting unit is the same as our operating segment and reportable segment. If we change our strategy or if market conditions shift, our judgments may change, which may result in adjustments to the recorded goodwill balance.

For annual goodwill impairment testing, we have the option to first perform a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount, including goodwill and other intangible assets. If we conclude that this is the case, we must perform the two-step test described below. If we conclude based on the qualitative assessment that it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, we have completed our goodwill impairment test and do not need to perform the two-step test.

Step one requires the fair value of each reporting unit is compared to its carrying value in order to identify potential impairment. If the fair value of a reporting unit exceeds the carrying value of its net assets, goodwill is not considered impaired and no further testing is required. If the carrying value of the net assets exceeds the fair value of a reporting unit, potential impairment is indicated at the reporting unit level and step two of the impairment test is performed.

Step two requires that when potential impairment is indicated in step one, we compare the implied fair value of goodwill with the carrying amount of that goodwill. Determining the implied fair value of goodwill requires a valuation of the reporting unit’s tangible and (non-goodwill) intangible assets and liabilities in a manner similar to the allocation of the purchase price in a business combination. Any excess in the value of a reporting unit over the amounts assigned to its assets and liabilities is referred to as the implied fair value of goodwill. If the carrying amount of the reporting unit goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to that excess.

As of March 31 2019, we had goodwill of $2.4 billion. During the quarter ended March 31, 2019, no triggering events were identified that indicated that the value of goodwill may be impaired. The Company performed its annual goodwill impairment assessment as of December 31, 2018 using step one of the quantitative test and found no indication of goodwill impairment at that date.

Balance Sheet Summary

Total assets at March 31, 2019 were $52.1 billion, up $231.7 million or 1.8% on an annualized basis compared to total assets as of December 31, 2018. This increase was attributable to loan growth, and to a lesser extent, growth in the securities portfolio. Total loans and leases, held for investment increased $360.1 million or 3.6% annualized compared to December 31, 2018. While all of our primary loan categories experienced growth during the quarter, the majority of the loan growth this quarter was in the C&I portfolio, specifically in the specialty finance loan portfolio, which rose $314.9 million or 15.8% (not annualized) to $2.3 billion. The CRE portfolio increased $80.4 million to $7.1 billion, up 4.6% on an annualized basis, while the multi-family portfolio rose $48.9 million to $30.0 billion, or 1.0% annualized.

While we continued to redeploy our excess cash position during the current first quarter, this quarter we utilized a large portion of cash to pay down some of our wholesale borrowings, as we refrained from investing in securities given current market conditions. Accordingly, the balance of available-for-sale securities increased $111.1 million or 7.9% annualized to $5.7 billion, while the balance of cash and cash equivalents declined $466.4 million to $1.0 billion. Total securities as a percentage of total assets was 11.0% during the first quarter, relatively unchanged from 10.9% at December 31, 2018. At March 31, 2019 approximately 32.0% of the securities portfolio was indexed to variable rates, mainly one-month and three-month LIBOR and prime.

The loan growth during the first quarter was once again funded primarily through deposits. Total deposits for the three months ended March 31, 2019 grew $836.7 million or 10.9% annualized to $31.6 billion compared to December 31, 2018. First quarter deposit growth was driven by growth in CDs, and to a lesser extent by growth in non-interest bearing deposits and in savings accounts, while interest-bearing checking and money market accounts declined modestly. CDs increased $573.5 million or 18.8% annualized to $12.8 billion compared to the CD balances at year-end. Non-interest bearing accounts rose $193.1 million or 32.2% annualized to $2.6 billion, while savings accounts increased $117.6 million or 10.1% annualized to $4.8 billion. Interest-bearing checking and money market accounts declined $47.5 million or 1.6% annualized to $11.5 million.

At March 31, 2019, borrowed funds totaled $13.3 billion, down $950.0 million or 26.7% annualized compared to $14.2 billion at year-end 2018. The decline was entirely attributable to a decline in wholesale borrowings, which consist mostly of FHLB-NY borrowings.

Total stockholders’ equity at March 31, 2019, was $6.6 billion compared to $6.7 billion at December 31, 2018. Common stockholders’ equity to total assets was 11.75% compared to 11.85% at December 31, 2018. The modest decline was due to balance sheet growth during the current first quarter. Book value per common share was to $13.11 at March 31, 2019 compared to $12.99 at December 31, 2018.

Excluding goodwill of $2.4 billion, tangible common stockholders’ equity totaled $3.7 billion at March 31, 2019, relatively unchanged compared to December 31, 2018. Tangible common stockholders’ equity to tangible assets was 7.44% compared to 7.51% at December 31, 2018. Tangible book value per common share at March 31, 2019 was $7.92 compared to $7.85 at December 31, 2018.

Loans and Leases

Loans and Leases Held for Investment

The majority of the loans we produce are loans and leases held for investment and most of the held-for-investment loans we produce are multi-family loans. Our production of multi-family loans began five decades ago in the five boroughs of New York City, where the majority of the rental units currently consist of non-luxury, rent-regulated apartments featuring below-market rents. In addition to multi-family loans, our portfolio of loans held for investment contains a large number of CRE loans, most of which are secured by income-producing properties located in New York City and Long Island.

In addition to multi-family and CRE loans, our portfolio includes smaller balances of one-to-four family loans, ADC loans, and other loans held for investment, with C&I loans comprising the bulk of the other loan portfolio. Specialty finance loans and leases account for the majority of our C&I loans, with the remainder consisting primarily of loans to small- and mid-size businesses, referred to as other C&I loans.

In first quarter 2019, we originated $2.0 billion of held-for-investment loans, down 6% from the $2.2 billion we originated in fourth quarter 2018 and down 16% from the $2.4 billion we originated in the first quarter of 2018. The year-over-year and linked-quarter decreases were primarily the result of declines in multi-family and CRE originations, offset by 73% and 31% increases in specialty finance originations. Multi-family originations during the first quarter were $1.0 billion a decrease of 21% compared to $1.3 billion during the fourth quarter of 2018 and 41% compared to the $1.7 billion during the first quarter of 2018. CRE originations totaled $207.2 million, down 11% compared to $233.4 million in the

prior quarter and up 17% compared to the prior year quarter, while specialty finance originations were $685.6 million as compared to $524.1 million during the previous quarter and $396.9 million during the prior year quarter. The following table presents information about the loans held for investment we originated for the respective periods:

LOANS AND LEASES ORIGINATED FOR INVESTMENT

(unaudited)


	For the Three Months Ended						Mar. 31, 2019 compared to
	Mar. 31,		Dec. 31,		Mar. 31,		Dec. 31,			Mar. 31,
	2019		2018		2018		2018			2018
(in thousands)
Mortgage Loans Originated for Investment:
Multi-family	$	1,009,351	$	1,278,514	$	1,706,211		-21	%		-41	%
Commercial real estate		207,209		233,367		177,142		-11	%		17	%
One-to-four family residential		3,209		4,900		2,699		-35	%		19	%
Acquisition, development, and construction		12,024		12,293		15,321		-2	%		-22	%

Total mortgage loans originated for investment		1,231,793		1,529,074		1,901,373		-19	%		-35	%

Other Loans Originated for Investment:
Specialty finance		685,611		524,104		396,889		31	%		73	%
Other commercial and industrial		104,947		101,104		117,614		4	%		-11	%
Other		920		1,077		878		-15	%		5	%

Total other loans originated for investment		791,478		626,285		515,381		26	%		54	%

Total Loans and Leases Originated for Investment	$	2,023,271	$	2,155,359	$	2,416,754		-6	%		-16	%

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

Multi-Family Loans

Multi-family loans are our principal asset. The loans we produce are primarily secured by non-luxury residential apartment buildings in New York City that are rent-regulated and feature below-market rents—a market we refer to as our Primary Lending Niche.

At March 31, 2019 multi-family loans represented $30.0 billion, or 73.9%, of total loans held for investment reflecting a $48.9 million increase from the balance at December 31, 2018, and a $1.3 billion or 4.5% increase compared to March 31, 2018. The average multi-family loan had a principal balance of $6.1 million at the end of the current first quarter, which was relatively unchanged compared to the balance at December 31, 2018, and an average weighted life of 2.4 years at March 31, 2019, as compared to 2.6 years at December 31, 2018.

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

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

While a small percentage of our multi-family loans are ten-year fixed rate credits, the vast majority of our multi-family loans feature a term of ten or twelve years, with a fixed rate of interest for the first five or seven years of the loan, and an alternative rate of interest in years six through ten or eight through twelve. The rate charged in the first five or seven years is generally based on intermediate-term interest rates plus a spread. During the remaining years, the loan resets to an annually adjustable rate that is tied to the prime rate of interest, plus a spread. Alternately, the borrower may opt for a fixed rate that is tied to the five-year fixed advance rate of the FHLB-NY, plus a spread. The fixed-rate option also requires the payment of one percentage point of the then-outstanding loan balance. In either case, the minimum rate at repricing is equivalent to the rate in the initial five-or seven-year term. As the rent roll increases, the typical property owner seeks to refinance the mortgage, and generally does so before the loan reprices in year six or eight.

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

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

Our success as a multi-family lender partly reflects the solid relationships we have developed with the market’s leading mortgage brokers, who are familiar with our lending practices, our underwriting standards, and our long-standing practice of basing our loans on the cash flows produced by the properties. The process of producing such loans is generally four to six weeks in duration and, because the multi-family market is largely broker-driven, the expense incurred in sourcing such loans is substantially reduced.

At March 31, 2019, the majority of our multi-family loans were secured by rental apartment buildings. In addition, 77.7% of our multi-family loans were secured by buildings in the metro New York City area and 3.6% were secured by buildings elsewhere in New York State. The remaining multi-family loans were secured by buildings outside these markets, including in the four other states served by our retail branch offices.

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

We primarily underwrite our multi-family loans based on the current cash flows produced by the collateral property, with a reliance on the “income” approach to appraising the properties, rather than the “sales” approach. The sales approach is subject to fluctuations in the real estate market, as well as general economic conditions, and is therefore likely to be more risky in the event of a downward credit cycle turn. We also consider a variety of other factors, including the physical condition of the underlying property; the net operating income of the mortgaged premises prior to debt service; the DSCR, which is the ratio of the property’s net operating income to its debt service; and the ratio of the loan amount to the appraised value (i.e., the LTV) of the property.

In addition to requiring a minimum DSCR of 120% on multi-family buildings, we obtain a security interest in the personal property located on the premises, and an assignment of rents and leases. Our multi-family loans generally represent no more than 75% of the lower of the appraised value or the sales price of the underlying property, and typically feature an amortization period of 30 years. In addition, our multi-family loans may contain an initial interest-only period which typically does not exceed two years; however, these loans are underwritten on a fully amortizing basis.

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

Commercial Real Estate Loans

CRE loans represented $7.1 billion, or 17.5%, of total loans held for investment at the end of the current first quarter, an $80.4 million increase from the balance at December 31, 2018, and a $173.6 million decrease from the balance at March 31, 2018.

At March 31, 2019, the average CRE loan had a principal balance of $6.3 million, up 4% from the average principal balance at December 31, 2018 and the average weighted life was 2.6 years at March 31, 2019, as compared to 2.7 years at December 31, 2018 and 2.9 years at March 31, 2018.

The CRE loans we produce are secured by income-producing properties such as office buildings, retail centers, mixed-use buildings, and multi-tenanted light industrial properties. At March 31, 2019, 86.2% of our CRE loans were secured by properties in the metro New York City area, while properties in other parts of New York State accounted for 2.8% of the properties securing our CRE credits, while all other states accounted for 10.9%, combined.

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

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

The repayment of loans secured by commercial real estate is often dependent on the successful operation and management of the underlying properties. To minimize our credit risk, we originate CRE loans in adherence with conservative underwriting standards, and require that such loans qualify on the basis of the property’s current income stream and DSCR. The approval of a loan also depends on the borrower’s credit history, profitability, and expertise in property management, and generally requires a minimum DSCR of 130% and a maximum LTV of 65%. In addition, the origination of CRE loans typically requires a security interest in the fixtures, equipment, and other personal property of the borrower and/or an assignment of the rents and/or leases. In addition, our CRE loans may contain an interest-only period which typically does not exceed three years; however, these loans are underwritten on a fully amortizing basis.

Acquisition, Development, and Construction Loans

The balance of ADC loans declined $115.1 million on a year-over-year basis, and $81.2 million sequentially to $326.6 million representing 0.8% of total held-for-investment loans at the current first-quarter end. Because ADC loans are generally considered to have a higher degree of credit risk, especially during a downturn in the credit cycle, borrowers are required to provide a guarantee of repayment and completion. We had no recoveries against guarantees for the three months ended March 31, 2019.

C&I Loans

Our C&I loans are divided into two categories: specialty finance loans and leases and other C&I loans, as further described below.

Specialty Finance Loans and Leases

At March 31, 2019, specialty finance loans and leases represented $2.3 billion of total loans held for investment, up $314.9 million or 16% sequentially and up $747.5 million or 48% on a year-over-year basis.

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

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

Since launching our specialty finance business in the third quarter of 2013, no losses have been recorded on any of the loans or leases in this portfolio.

Other C&I Loans

In the three months ended March 31, 2019, other C&I loans totaled $477.5 million, compared to $469.9 million at December 31, 2018 and $522.0 million at March 31, 2018.

Included in the quarter-end balance were taxi medallion-related loans of $69.6 million, representing 0.17% of total held-for-investment loans at March 31, 2019.

In contrast to the loans produced by our specialty finance subsidiary, the other C&I loans we produce are primarily made to small and mid-size businesses in the five boroughs of New York City and on Long Island. Such loans are tailored to meet the specific needs of our borrowers, and include term loans, demand loans, revolving lines of credit, and, to a much lesser extent, loans that are partly guaranteed by the Small Business Administration.

A broad range of other C&I loans, both collateralized and unsecured, are made available to businesses for working capital (including inventory and accounts receivable), business expansion, the purchase of machinery and equipment, and other general corporate needs. In determining the term and structure of other C&I loans, several factors are considered, including the purpose, the collateral, and the anticipated sources of repayment. Other C&I loans are typically secured by business assets and personal guarantees of the borrower, and include financial covenants to monitor the borrower’s financial stability.

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

One-to-Four Family Loans

At March 31, 2019, one-to-four family loans held for investment decreased slightly on a sequential basis to $435.7 million, representing 1.1% of total loans held for investment at that date. At March 31, 2018, the balance of one-to-four family loans held for investment was $465.7 million.

Other Loans

At March 31, 2019, other loans totaled $8.0 million and consisted primarily of consumer loans, most of which were overdraft loans and loans to non-profit organizations. We currently do not offer home equity loans or home equity lines of credit.

Lending Authority

The loans we originate for investment are subject to federal and state laws and regulations, and are underwritten in accordance with loan underwriting policies approved by the Management Credit Committee, the Commercial Credit Committee and the Mortgage and Real Estate and Credit Committees of the Board, and the Board of Directors of the Bank.

C&I loans less than or equal to $3.0 million are approved by the joint authority of lending officers. C&I loans in excess of $3.0 million and all multifamily, CRE, ADC and Specialty Finance loans regardless of amount are required to be presented to the Management Credit Committee for approval. Multifamily, CRE and C&I loans in excess of $5.0 million and Specialty finance in excess of $15.0 million are also required to be presented to the Commercial Credit Committee and the Mortgage and Real Estate Committee of the Board, as applicable so that the Committees can review the loan’s associated risks. The Commercial Credit and Mortgage and Real Estate Committees have authority to direct changes in lending practices as they deem necessary or appropriate in order to address individual or aggregate risks and credit exposures in accordance with the Bank’s strategic objectives and risk appetites.

All mortgage loans in excess of $50.0 million, Specialty Finance loans in excess of $15.0 million and all other C&I loans in excess of $5.0 million require approval by the Mortgage and Real Estate Committee or the Credit Committee of the Board, as applicable.

In addition, all loans of $20.0 million or more originated by the Bank continue to be reported to the Board of Directors.

At March 31, 2019, the largest loan in our portfolio was a $246.0 million multi-family loan originated by the Bank on February 8, 2018 collateralized by six properties in Brooklyn, New York. As of the date of this report, the loan has been current since origination.

Geographical Analysis of the Portfolio of Loans Held for Investment

The following table presents a geographical analysis of the multi-family and CRE loans in our held-for-investment loan portfolio at March 31, 2019:


	At March 31, 2019
	Multi-Family Loans					Commercial Real Estate Loans
(dollars in thousands)	Amount		Percent of Total			Amount		Percent of Total
New York City:
Manhattan	$	7,648,817		25.55	%	$	3,468,286		48.99	%
Brooklyn		5,067,754		16.93			530,501		7.49
Bronx		3,986,260		13.32			89,394		1.26
Queens		2,514,449		8.40			611,841		8.64
Staten Island		82,583		0.28			54,748		0.77

Total New York City	$	19,299,863		64.48	%	$	4,754,770		67.15	%

New Jersey		3,406,337		11.38			524,223		7.41
Long Island		559,774		1.87			825,065		11.66

Total Metro New York	$	23,265,974		77.73	%	$	6,104,058		86.22	%

Other New York State		1,091,288		3.64			200,821		2.84
All other states		5,575,567		18.63			774,362		10.94

Total	$	29,932,829		100.00	%	$	7,079,241		100.00	%

At March 31, 2019, the largest concentration of ADC loans held for investment was located in New York City, with a total of $324.2 million. The majority of our other loans held for investment were secured by properties and/or businesses located in Metro New York.

Outstanding Loan Commitments

At March 31, 2019, we had outstanding loan commitments of $1.4 billion, down $3.3 million from the level at December 31, 2018 and down $888.1 million compared to $2.3 billion at March 31, 2018.

Multi-family, CRE, and ADC loans together represented $638.6 million of held-for-investment loan commitments at the end of the quarter, while other loans represented $1.4 billion. Included in the latter amount were commitments to originate specialty finance loans and leases of $945.4 million and commitments to originate other C&I loans of $293.0 million.

In addition to loan commitments, we had commitments to issue financial stand-by, performance stand-by, and commercial letters of credit totaling $513.8 million at March 31, 2019, a $5.6 million increase from the volume at December 31, 2018. The fees we collect in connection with the issuance of letters of credit are included in Fee Income in the Consolidated Statements of Income and Comprehensive Income.

Asset Quality

Loans Held for Investment and Repossessed Assets

Total NPAs increased $15.0 million, or 27% to $71.3 million, or 0.14% of total assets at March 31, 2019 compared to $56.3 million, or 0.11% of total assets at December 31, 2018. The increase was entirely due to one C&I borrower.

Repossessed assets totaled $12.8 million at March 31, 2019, up 18.2% compared to the prior quarter. The majority of our repossessed assets consist of repossessed taxi medallions, which represented $10.8 million of repossessed assets during the current quarter and $8.2 million in the prior quarter. At March 31 2019, the Company’s total taxi medallion-related loans were $69.6 million compared to $73.7 million at year end 2018.

In the first quarter of 2019, the Company recorded net charge-offs of $2.0 million or 0.00% of average loans compared to $2.6 million or 0.01% in the prior quarter. As in the previous quarter, the majority of our net charge-offs were taxi medallion-related. Aside from taxi medallion-related charge-offs, the Company did not have any charge-offs this quarter in its multi-family, CRE, and C&I portfolios.

The following table presents our non-performing loans by loan type and the changes in the respective balances from December 31, 2018 to March 31, 2019:


					Change from December 31, 2018 to March 31, 2019
(dollars in thousands)	March 31, 2019		December 31, 2018		Amount			Percent
Non-Performing Loans:
Non-accrual mortgage loans:
Multi-family	$	4,070	$	4,220	$	(150	)		(3.55	)%
Commercial real estate		3,007		3,021		(14	)		(0.46	)
One-to-four family		1,637		1,651		(14	)		(0.85	)
Acquisition, development, and construction		—		—		—			—

Total non-accrual mortgage loans		8,714		8,892		(178	)		(2.00	)
Non-accrual other loans ⁽¹⁾		49,860		36,614		13,246			36.18

Total non-performing loans	$	58,574	$	45,506	$	13,068			28.72	%

(1)	Includes $33.8 million and $35.5 million of non-accrual taxi medallion-related loans at March 31, 2019 and December 31, 2018, respectively.

The following table sets forth the changes in non-performing loans over the three months ended March 31, 2019:


(in thousands)
Balance at December 31, 2018	$	45,506
New non-accrual		19,153
Charge-offs		(262	)
Transferred to other real estate owned		—
Loan payoffs, including dispositions and principal pay-downs		(5,823	)
Restored to performing status		—

Balance at March 31, 2019	$	58,574

A loan generally is classified as a non-accrual loan when it is 90 days or more past due or when it is deemed to be impaired because we no longer expect to collect all amounts due according to the contractual terms of the loan agreement. When a loan is placed on non-accrual status, we cease the accrual of interest owed, and previously accrued interest is reversed and charged against interest income. At March 31, 2019 and December 31, 2018, all of our non-performing loans were non-accrual loans. A loan is generally returned to accrual status when the loan is current and we have reasonable assurance that the loan will be fully collectible.

We monitor non-accrual loans both within and beyond our primary lending area, which is defined as including: (a) the counties that comprise our CRA Assessment area, and (b) the entirety of the following states: Arizona; Florida; New York; New Jersey; Ohio; and Pennsylvania, in the same manner. Monitoring loans generally involves inspecting and re-appraising the collateral properties; holding discussions with the principals and managing agents of the borrowing entities and/or retained legal counsel, as applicable; requesting financial, operating, and rent roll information; confirming that hazard insurance is in place or force-placing such insurance; monitoring tax payment status and advancing funds as needed; and appointing a receiver, whenever possible, to collect rents, manage the operations, provide information, and maintain the collateral properties.

It is our policy to order updated appraisals for all non-performing loans, irrespective of loan type, that are collateralized by multi-family buildings, CRE properties, or land, in the event that such a loan is 90 days or more past due, and if the most recent appraisal on file for the property is more than one year old. Appraisals are ordered annually until such time as the loan becomes performing and is returned to accrual status. It is not our policy to obtain updated appraisals for performing loans. However, appraisals may be ordered for performing loans when a borrower requests an increase in the loan amount, a modification in loan terms, or an extension of a maturing loan. We do not analyze current LTVs on a portfolio-wide basis.

Non-performing loans are reviewed regularly by management and discussed on a monthly basis with the Management Credit Committee, the Commercial and the Mortgage and Real Estate Credit Committees of the Board, and the Boards of Directors of the Company and the Bank, as applicable. Collateral-dependent non-performing loans are written down to their current appraised values, less certain transaction costs. Workout specialists from our Loan Workout Unit actively pursue borrowers who are delinquent in repaying their loans in an effort to collect payment. In addition, outside counsel with experience in foreclosure proceedings are retained to institute such action with regard to such borrowers.

Properties and assets that are acquired through foreclosure are classified as either OREO or repossessed assets, and are recorded at fair value at the date of acquisition, less the estimated cost of selling the property/asset. Subsequent declines in the fair value of OREO or repossessed assets are charged to earnings and are included in non-interest expense. It is our policy to require an appraisal and an environmental assessment of properties classified as OREO before foreclosure, and to re-appraise the properties/assets on an as-needed basis, and not less than annually, until they are sold. We dispose of such properties/assets as quickly and prudently as possible, given current market conditions and the property’s or asset’s condition.

To mitigate the potential for credit losses, we underwrite our loans in accordance with credit standards that we consider to be prudent. In the case of multi-family and CRE loans, we look first at the consistency of the cash flows being generated by the property to determine its economic value using the “income approach,” and then at the market value of the property that collateralizes the loan. The amount of the loan is then based on the lower of the two values, with the economic value more typically used.

The condition of the collateral property is another critical factor. Multi-family buildings and CRE properties are inspected from rooftop to basement as a prerequisite to approval, with a member of the Mortgage or Credit Committee participating in inspections on multi-family loans to be originated in excess of $7.5 million, and a member of the Mortgage or Credit Committee participating in inspections on CRE loans to be originated in excess of $4.0 million. Furthermore, independent appraisers, whose appraisals are carefully reviewed by our experienced in-house appraisal officers and staff, perform appraisals on collateral properties. In many cases, a second independent appraisal review is performed.

In addition, we work with a select group of mortgage brokers who are familiar with our credit standards and whose track record with our lending officers is typically greater than ten years. Furthermore, in New York City, where the majority of the buildings securing our multi-family loans are located, the rents that tenants may be charged on certain apartments are typically restricted under certain rent-control or rent-stabilization laws. As a result, the rents that tenants pay for such apartments are generally lower than current market rents. Buildings with a preponderance of such rent-regulated apartments are less likely to experience vacancies in times of economic adversity.

Reflecting the strength of the underlying collateral for these loans and the collateral structure, a relatively small percentage of our non-performing multi-family loans have resulted in losses over time.

To further manage our credit risk, our lending policies limit the amount of credit granted to any one borrower, and typically require minimum DSCRs of 120% for multi-family loans and 130% for CRE loans. Although we typically lend up to 75% of the appraised value on multi-family buildings and up to 65% on commercial properties, the average LTVs of such credits at origination were below those amounts at March 31, 2019. Exceptions to these LTV limitations are minimal and are reviewed on a case-by-case basis.

The repayment of loans secured by commercial real estate is often dependent on the successful operation and management of the underlying properties. To minimize our credit risk, we originate CRE loans in adherence with conservative underwriting standards, and require that such loans qualify on the basis of the property’s current income stream and DSCR. The approval of a CRE loan also depends on the borrower’s credit history, profitability, and expertise in property management. Given that our CRE loans are underwritten in accordance with underwriting standards that are similar to those applicable to our multi-family credits, the percentage of our non-performing CRE loans that have resulted in losses has been comparatively small over time.

Multi-family and CRE loans are generally originated at conservative LTVs and DSCRs, as previously stated. Low LTVs provide a greater likelihood of full recovery and reduce the possibility of incurring a severe loss on a credit; in many cases, they reduce the likelihood of the borrower “walking away” from the property. Although borrowers may default on loan payments, they have a greater incentive to protect their equity in the collateral property and to return their loans to performing status. Furthermore, in the case of multi-family loans, the cash flows generated by the properties are generally below-market and have significant value.

With regard to ADC loans, we typically lend up to 75% of the estimated as-completed market value of multi-family and residential tract projects; however, in the case of home construction loans to individuals, the limit is 80%. With respect to commercial construction loans, we typically lend up to 65% of the estimated as-completed market value of the property. Credit risk is also managed through the loan disbursement process. Loan proceeds are disbursed periodically in increments as construction progresses, and as warranted by inspection reports provided to us by our own lending officers and/or consulting engineers.

To minimize the risk involved in specialty finance lending and leasing, each of our credits is secured with a perfected first security interest or outright ownership in the underlying collateral, and structured as senior debt or as a non-cancellable lease. To further minimize the risk involved in specialty finance lending and leasing, we re-underwrite each transaction. In addition, we retain outside counsel to conduct a further review of the underlying documentation.

Other C&I loans are typically underwritten on the basis of the cash flows produced by the borrower’s business, and are generally collateralized by various business assets, including, but not limited to, inventory, equipment, and accounts receivable. As a result, the capacity of the borrower to repay is substantially dependent on the degree to which the business is successful. Furthermore, the collateral underlying the loan may depreciate over time, may not be conducive to appraisal, and may fluctuate in value, based upon the operating results of the business. Accordingly, personal guarantees are also a normal requirement for other C&I loans.

In addition, one-to-four family loans, ADC loans, and other loans represented 1.1%, 0.81%, and 6.7%, respectively, of total loans and leases held for investment at March 31, 2019, comparable to, or consistent with, the levels at December 31, 2018. Furthermore, at the end of the current first quarter, only 1.8% of our other loans and 0.38% of one-to-four family loans were non-performing at that date, while we had no non-performing ADC loans.

The procedures we follow with respect to delinquent loans are generally consistent across all categories, with late charges assessed, and notices mailed to the borrower, at specified dates. We attempt to reach the borrower by telephone to ascertain the reasons for delinquency and the prospects for repayment. When contact is made with a borrower at any time prior to foreclosure or recovery against collateral property, we attempt to obtain full payment, and will consider a repayment schedule to avoid taking such action. Delinquencies are addressed by our Loan Workout Unit and every effort is made to collect rather than initiate foreclosure proceedings.

The following table presents our loans 30 to 89 days past due by loan type and the changes in the respective balances from December 31, 2018 to March 31, 2019:


					Change from December 31, 2018 to March 31, 2019
(dollars in thousands)	March 31, 2019		December 31, 2018		Amount			Percent
Loans 30-89 Days Past Due:
Multi-family	$	2,359	$	—	$	2,359			NM	%
Commercial real estate		3,278		—		3,278			NM
One-to-four family		9		9		—			NM
Acquisition, development, and construction		6,608		—		6,608			NM
Other loans ⁽¹⁾		276		555		(279	)		(50.27	)

Total loans 30-89 days past due	$	12,530	$	564	$	11,966			2,121.63	%

(1)	Includes $0 and $530,000 of non-accrual taxi medallion-related loans at March 31, 2019 and December 31, 2018, respectively.

Fair values for all multi-family buildings, CRE properties, and land are determined based on the appraised value. If an appraisal is more than one year old and the loan is classified as either non-performing or as an accruing TDR, then an updated appraisal is required to determine fair value. Estimated disposition costs are deducted from the fair value of the property to determine estimated net realizable value. In the instance of an outdated appraisal on an impaired loan, we adjust the original appraisal by using a third-party index value to determine the extent of impairment until an updated appraisal is received.

While we strive to originate loans that will perform fully, adverse economic and market conditions, among other factors, can adversely impact a borrower’s ability to repay.

Reflecting management’s assessment of the allowance for loan losses, we recorded a $1.2 million recovery on loan losses in the current first quarter, as compared to a provision for loan losses of $2.8 million in the trailing three months. Reflecting the first-quarter recovery, and the aforementioned net charge-offs, the allowance for losses on loans was $156.6 million at March 31, 2019. This represented 0.39% of total loans and 267.42% of non-performing loans at that date.

Based upon all relevant and available information as of the end of the current first quarter, management believes that the allowance for losses on loans was appropriate at that date.

At March 31, 2019, our three largest non-performing loans were two C&I loans with balances of $13.0 million and $4.1 million, and a multi-family loan with a balance of $4.1 million. The borrower with the $13.0 million non-performing loan also has a $2.0 million non-performing loan as part of his relationship.

Troubled Debt Restructurings

In an effort to proactively manage delinquent loans, we have selectively extended to certain borrowers such concessions as rate reductions and extensions of maturity dates, as well as forbearance agreements, when such borrowers have exhibited financial difficulty. In accordance with GAAP, we are required to account for such loan modifications or restructurings as TDRs.

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

Loans modified as TDRs are placed on non-accrual status until we determine that future collection of principal and interest is reasonably assured. This generally requires that the borrower demonstrate performance according to the restructured terms for at least six consecutive months. At March 31, 2019, non-accrual TDRs included taxi medallion-related loans with a combined balance of $22.1 million.

At March 31, 2019, loans on which concessions were made with respect to rate reductions and/or extensions of maturity dates totaled $34.6 million; loans in connection with which forbearance agreements were reached totaled $37,000 at that date.

Based on the number of loans performing in accordance with their revised terms, our success rates for restructured multi-family loans, and ADC loans were 100%. The success rates for restructured one-to-four family and other loans were 50% and 85%, respectively, at March 31, 2019.

Analysis of Troubled Debt Restructurings

The following table sets forth the changes in our TDRs over the three months ended March 31, 2019:


(in thousands)	Accruing			Non-Accrual			Total
Balance at December 31, 2018	$	9,162		$	25,719		$	34,881
New TDRs		—			2,667			2,667
Charge-offs		—			(96	)		(96	)
Loan payoffs, including dispositions and principal pay-downs		(1,762	)		(1,091	)		(2,853	)

Balance at March 31, 2019	$	7,400		$	27,199		$	34,599

On a limited basis, we may provide additional credit to a borrower after a loan has been placed on non-accrual status or classified as a TDR if, in management’s judgment, the value of the property after the additional loan funding is greater than the initial value of the property plus the additional loan funding amount. During the three months ended March 31, 2019, no such additions were made. Furthermore, the terms of our restructured loans typically would not restrict us from cancelling outstanding commitments for other credit facilities to a borrower in the event of non-payment of a restructured loan.

Except for the non-accrual loans and TDRs disclosed in this filing, we did not have any potential problem loans at the end of the current first quarter that would have caused management to have serious doubts as to the ability of a borrower to comply with present loan repayment terms and that would have resulted in such disclosure if that were the case.

Asset Quality Analysis

The following table presents information regarding our consolidated allowance for loan losses, our non-performing assets, and our 30 to 89 days past due loans at March 31, 2019 and December 31, 2018.


	At or For the			At or For the
	Three Months Ended			Year Ended
(dollars in thousands)	March 31, 2019			December 31, 2018
Allowance for Loan Losses:
Balance at beginning of period	$	159,820		$	158,046
(Recovery of) provision for losses		(1,222	)		18,256
Charge-offs:
Multi-family		—			(34	)
Commercial real estate		—			(3,191	)
One-to-four family residential		—			—
Acquisition, development, and construction					(2,220	)
Other loans		(2,079	)		(12,897	)

Total charge-offs		(2,079	)		(18,342	)
Recoveries:
Multi-family		—			—
Commercial real estate		—			137
One-to-four family residential		—			—
Acquisition, development, and construction		7			127
Other loans		110			1,596

Total recoveries		117			1,860

Net charge-offs		(1,962	)		(16,482	)

Balance at end of period	$	156,636		$	159,820

Non-Performing Assets:
Non-accrual mortgage loans:
Multi-family	$	4,070		$	4,220
Commercial real estate		3,007			3,021
One-to-four family residential		1,637			1,651
Acquisition, development, and construction		—			—

Total non-accrual mortgage loans		8,714			8,892
Other non-accrual loans		49,860			36,614

Total non-performing loans	$	58,574		$	45,506
Repossessed assets ⁽¹⁾		12,758			10,794

Total non-performing assets	$	71,332		$	56,300

Asset Quality Measures:
Non-performing loans to total loans		0.14	%		0.11	%
Non-performing assets to total assets		0.14			0.11
Allowance for loan losses to non-performing loans		267.42			351.21
Allowance for loan losses to total loans		0.39			0.40
Net charge-offs during the period to average loans outstanding during the period		0.00			0.04

Loans 30-89 Days Past Due:
Multi-family	$	2,359		$	—
Commercial real estate		3,278			—
One-to-four family residential		9			9
Acquisition, development, and construction		6,608			—
Other loans		276			555

Total loans 30-89 days past due ⁽²⁾	$	12,530		$	564

(1)	Includes $10.8 million and $8.2 million of repossessed taxi medallions at March 31, 2019 and December 31, 2018, respectively.

(2)	Includes $0 and $530,000 of taxi medallion loans at March 31, 2019 and December 31, 2018, respectively.

Geographical Analysis of Non-Performing Loans

The following table presents a geographical analysis of our non-performing loans at March 31, 2019:


(in thousands)
New York	$	52,014
New Jersey		4,954
Arizona		847
All other states		759

Total non-performing loans	$	58,574

Securities

Securities increased $112.7 million from December 31, 2018 to $5.8 billion or 11.0% of total assets at March 31, 2019. During the second quarter of 2017, we reclassified our entire securities portfolio as “Available-for-Sale”. Accordingly, at March 31, 2019 and December 31, 2018, we had no securities designated as “Held-to-Maturity”. At March 31, 2019, 32% of the securities portfolio was variable rates, mainly one- and three-month LIBOR and prime.

Federal Home Loan Bank Stock

As a member of the FHLB-NY, the Bank is required to acquire and hold shares of its capital stock, and to the extent FHLB borrowings are utilized, may further invest in FHLB stock. At March 31, 2019 and December 31, 2018, the Bank held FHLB-NY stock in the amount of $588.2 million and $644.6 million, respectively. FHLB-NY stock continued to be valued at par, with no impairment required at that date.

Dividends from the FHLB-NY to the Bank totaled $11.4 million and $9.3 million, respectively, in the three months ended March 31, 2019 and 2018.

Bank-Owned Life Insurance

BOLI is recorded at the total cash surrender value of the policies in the Consolidated Statements of Condition, and the income generated by the increase in the cash surrender value of the policies is recorded in Non-Interest Income in the Consolidated Statements of Income and Comprehensive Income. Reflecting an increase in the cash surrender value of the underlying policies, our investment in BOLI rose $4.6 million to $982.3 million in the three months ended March 31, 2019.

Goodwill

We record goodwill in our Consolidated Statements of Condition in connection with certain of our business combinations. Goodwill, which is tested at least annually for impairment, refers to the difference between the purchase price and the fair value of an acquired company’s assets, net of the liabilities assumed. Goodwill totaled $2.4 billion at both March 31, 2019 and December 31, 2018. For more information about the Company’s goodwill, see the discussion of “Critical Accounting Policies” earlier in this report.

Sources of Funds

The Parent Company (i.e., the Company on an unconsolidated basis) has three primary funding sources for the payment of dividends, share repurchases, and other corporate uses: dividends paid to the Company by the Banks; capital raised through the issuance of stock; and funding raised through the issuance of debt instruments.

On a consolidated basis, our funding primarily stems from a combination of the following sources: deposits; borrowed funds, primarily in the form of wholesale borrowings; the cash flows generated through the repayment and sale of loans; and the cash flows generated through the repayment and sale of securities.

Loan repayments and sales totaled $1.7 billion in the three months ended March 31, 2019, down from the $1.9 billion recorded in the year-earlier three months. Cash flows from the repayment and sales of securities totaled $589.0 million and $346.6 million, respectively, in the corresponding periods, while purchases of securities totaled $655.4 million and $292.9 million, respectively.

Deposits

Our ability to retain and attract deposits depends on numerous factors, including customer satisfaction, the rates of interest we pay, the types of products we offer, and the attractiveness of their terms. From time to time, we have chosen not to compete actively for deposits, depending on our access to deposits through acquisitions, the availability of lower-cost funding sources, the impact of competition on pricing, and the need to fund our loan demand.

In the three months ended March 31, 2019, total deposits of $31.6 billion were up $836.7 million as compared to the level recorded at December 31, 2018. CDs represented 40.4% of total deposits at the end of the first quarter, and total deposits represented 60.6% of total assets at that date.

Included in the March 31, 2019 balance of deposits were institutional deposits of $1.8 billion and municipal deposits of $1.1 billion, as compared to $1.8 billion and $961.9 million, respectively, at December 31, 2018. Brokered deposits rose $5.9 million during the first quarter, to $4.0 billion, reflecting an $114.0 million decrease in brokered money market accounts to $1.8 billion and a $51.8 million increase in brokered CDs to $1.4 billion. In addition, at March 31, 2019, we had $854.2 million of brokered interest bearing checking accounts, an increase of $68.1 million from December 31, 2018. The extent to which we accept brokered deposits depends on various factors, including the availability and pricing of such wholesale funding sources, and the availability and pricing of other sources of funds.

Borrowed Funds

Borrowed funds consist primarily of wholesale borrowings (i.e., FHLB-NY advances, repurchase agreements, and federal funds purchased) and, to a far lesser extent, junior subordinated debentures. In the three months ended March 31, 2019, the balance of borrowed funds decreased $950.0 million from year-end 2018 to $13.3 billion, representing 25.4% of total assets, at that date. The majority of the decrease was related to a higher balance of wholesale borrowings.

Wholesale Borrowings

Wholesale borrowings declined $950.0 million from the year-end 2018 amount to $12.6 billion, representing 24.2% of total assets, at March 31, 2019.

FHLB-NY advances decreased $1.3 billion since December 31, 2018, to $11.8 billion, while the balance of repurchase agreements were $800 million at March 31, 2019 and $500 million at December 31, 2018.

Subordinated Notes

On November 6, 2018, the Company issued $300 million aggregate principal amount of its 5.90% Fixed-to-Floating Rate Subordinated Notes due 2028. The Company intends to use the net proceeds from the Offering for general corporate purposes, which may include opportunistic repurchases of shares of its common stock pursuant to its previously announced share repurchase program. The Notes were offered to the public at 100% of their face amount. At March 31, 2019, the balance of subordinated notes was $294.6 million, which excludes certain costs related to their issuance.

Junior Subordinated Debentures

Junior subordinated debentures totaled $359.5 million at the end of the current first quarter, comparable to the balance at December 31, 2018.

Risk Definitions

The following section outlines the definitions of interest rate risk, market risk, and liquidity risk, and how the Company manages market and interest rate risk:

Interest Rate Risk – Interest rate risk is the risk to earnings or capital arising from movements in interest rates. Interest rate risk arises from differences between the timing of rate changes and the timing of cash flows (re-pricing risk); from changing rate relationships among different yield curves affecting Company activities (basis risk); from changing rate relationships across the spectrum of maturities (yield curve risk); and from interest-related options embedded in a bank’s products (options risk). The evaluation of interest rate risk must consider the impact of complex, illiquid hedging strategies or products, and also the potential impact on fee income (e.g. prepayment income) which is sensitive to changes in interest rates. In those situations where trading is separately managed, this refers to structural positions and not trading portfolios.

Market Risk – Market risk is the risk to earnings or capital arising from changes in the value of portfolios of financial instruments. This risk arises from market-making, dealing, and position-taking activities in interest rate, foreign exchange, equity, and commodities markets. Many banks use the term “price risk” interchangeably with market risk; this is because market risk focuses on the changes in market factors (e.g., interest rates, market liquidity, and volatilities) that affect the value of traded instruments. The primary accounts affected by market risk are those which are revalued for financial presentation (e.g., trading accounts for securities, derivatives, and foreign exchange products).

Liquidity Risk – Liquidity risk is the risk to earnings or capital arising from a bank’s inability to meet its obligations when they become due, without incurring unacceptable losses. Liquidity risk includes the inability to manage unplanned decreases or changes in funding sources. Liquidity risk also arises from a bank’s failure to recognize or address changes in market conditions that affect the ability to liquidate assets quickly and with minimal loss in value.

Management of Market and Interest Rate Risk

We manage our assets and liabilities to reduce our exposure to changes in market interest rates. The asset and liability management process has three primary objectives: to evaluate the interest rate risk inherent in certain balance sheet accounts; to determine the appropriate level of risk, given our business strategy, risk appetite, operating environment, capital and liquidity requirements, and performance objectives; and to manage that risk in a manner consistent with guidelines approved by the Boards of Directors of the Company and the Bank.

Market and Interest Rate Risk

As a financial institution, we are focused on reducing our exposure to interest rate volatility. Changes in interest rates pose the greatest challenge to our financial performance, as such changes can have a significant impact on the level of income and expense recorded on a large portion of our interest-earning assets and interest-bearing liabilities, and on the market value of all interest-earning assets, other than those possessing a short term to maturity. To reduce our exposure to changing rates, the Boards of Directors and management monitor interest rate sensitivity on a regular or as needed basis so that adjustments to the asset and liability mix can be made when deemed appropriate.

The actual duration of held-for-investment mortgage loans and mortgage-related securities can be significantly impacted by changes in prepayment levels and market interest rates. The level of prepayments may be impacted by a variety of factors, including the economy in the region where the underlying mortgages were originated; seasonal factors; demographic variables; and the assumability of the underlying mortgages. However, the largest determinants of prepayments are interest rates and the availability of refinancing opportunities.

We managed our interest rate risk by taking the following actions: (1) We continued to emphasize the origination and retention of intermediate-term assets, primarily in the form of multi-family and CRE loans; (2) We continued the origination of certain C&I loans that feature floating interest rates; (3) We replaced maturing wholesale borrowings with longer term borrowings, including some with callable features; and (4) We entered into an interest rate swap with a notional amount of $2.0 billion to hedge certain real estate loans.

Interest Rate Sensitivity Analysis

The matching of assets and liabilities may be analyzed by examining the extent to which such assets and liabilities are “interest rate sensitive” and by monitoring a bank’s interest rate sensitivity “gap.” An asset or liability is said to be interest rate sensitive within a specific time frame if it will mature or reprice within that period of time. The interest rate sensitivity gap is defined as the difference between the amount of interest-earning assets maturing or repricing within a specific time frame and the amount of interest-bearing liabilities maturing or repricing within that same period of time.

In a rising interest rate environment, an institution with a negative gap would generally be expected, absent the effects of other factors, to experience a greater increase in the cost of its interest-bearing liabilities than it would in the yield on its interest-earning assets, thus producing a decline in its net interest income. Conversely, in a declining rate environment, an institution with a negative gap would generally be expected to experience a lesser reduction in the yield on its interest-earning assets than it would in the cost of its interest-bearing liabilities, thus producing an increase in its net interest income.

In a rising interest rate environment, an institution with a positive gap would generally be expected to experience a greater increase in the yield on its interest-earning assets than it would in the cost of its interest-bearing liabilities, thus producing an increase in its net interest income. Conversely, in a declining rate environment, an institution with a positive gap would generally be expected to experience a lesser reduction in the cost of its interest-bearing liabilities than it would in the yield on its interest-earning assets, thus producing a decline in its net interest income.

At March 31, 2019, our one-year gap was a negative 17.91%, compared to a negative 22.56% at December 31, 2018.

The table on the following page sets forth the amounts of interest-earning assets and interest-bearing liabilities outstanding at March 31, 2019 which, based on certain assumptions stemming from our historical experience, are expected to reprice or mature in each of the future time periods shown. Except as stated below, the amounts of assets and liabilities shown as repricing or maturing during a particular time period were determined in accordance with the earlier of (1) the term to repricing, or (2) the contractual terms of the asset or liability.

The table provides an approximation of the projected repricing of assets and liabilities at March 31, 2019 on the basis of contractual maturities, anticipated prepayments, and scheduled rate adjustments within a three-month period and subsequent selected time intervals. For residential mortgage-related securities, prepayment rates are forecasted at a weighted average CPR of 9% per annum; for multi-family and CRE loans, prepayment rates are forecasted at weighted average CPRs of 16% and 10% per annum, respectively. Borrowed funds were not assumed to prepay.

Savings, interest bearing checking and money market accounts were assumed to decay based on a comprehensive statistical analysis that incorporated our historical deposit experience. Based on the results of this analysis, savings accounts were assumed to decay at a rate of 59% for the first five years and 41% for years six through ten. Interest-bearing checking accounts were assumed to decay at a rate of 76% for the first five years and 24% for years six through ten. The decay assumptions reflect the prolonged low interest rate environment and the uncertainty regarding future depositor behavior. Including those accounts having specified repricing dates, money market accounts were assumed to decay at a rate of 83% for the first five years and 17% for years six through ten.


	At March 31, 2019
(dollars in thousands)	Three Months or Less			Four to Twelve Months			More Than One Year to Three Years			More Than Three Years to Five Years			More Than Five Years to 10 Years			More Than 10 Years			Total
INTEREST-EARNING ASSETS:
Mortgage and other loans ⁽¹⁾	$	5,677,751		$	5,711,260		$	15,954,426		$	10,804,063		$	2,199,780		$	120,165		$	40,467,445
Mortgage-related securities ⁽²⁾⁽³⁾		45,535			148,936			559,523			743,713			648,409			704,644			2,850,760
Other securities ⁽²⁾		1,981,240			226,498			53,889			51,019			878,933			270,501			3,462,080
Interest-earning cash and cash equivalents		831,988			—			—			—			—			—			831,988

Total interest-earning assets		8,536,514			6,086,694			16,567,838			11,598,795			3,727,122			1,095,310			47,612,273

INTEREST-BEARING LIABILITIES:
Interest-bearing checking and money market accounts		6,017,299			808,363			1,462,989			860,652			2,333,288			—			11,482,591
Savings accounts		700,708			1,015,136			616,857			455,364			1,972,812			—			4,760,877
Certificates of deposit		3,160,574			7,362,289			2,043,534			199,864			1,518			—			12,767,779
Borrowed funds		1,144,926			3,750,000			2,572,661			—			5,650,000			140,323			13,257,910

Total interest-bearing liabilities		11,023,507			12,935,788			6,696,041			1,515,880			9,957,618			140,323			42,269,157

Interest rate sensitivity gap per period ⁽⁴⁾	$	(2,486,993	)	$	(6,849,094	)	$	9,871,797		$	10,082,915		$	(6,230,496	)	$	954,987		$	5,343,116

Cumulative interest rate sensitivity gap	$	(2,486,993	)	$	(9,336,087	)	$	535,710		$	10,618,625		$	4,388,129		$	5,343,116

Cumulative interest rate sensitivity gap as a percentage of total assets		(4.77	)%		(17.91	)%		1.03	%		20.37	%		8.42	%		10.25	%
Cumulative net interest-earning assets as a percentage of net interest-bearing liabilities		77.44	%		61.03	%		101.75	%		133.01	%		110.42	%		112.64	%

(1)	For the purpose of the gap analysis, non-performing loans and the allowances for loan losses have been excluded.

(2)	Mortgage-related and other securities, including FHLB stock, are shown at their respective carrying amounts.

(3)	Expected amount based, in part, on historical experience.

(4)	The interest rate sensitivity gap per period represents the difference between interest-earning assets and interest-bearing liabilities.

Prepayment and deposit decay rates can have a significant impact on our estimated gap. While we believe our assumptions to be reasonable, there can be no assurance that the assumed prepayment and decay rates will approximate actual future loan and securities prepayments and deposit withdrawal activity.

To validate our prepayment assumptions for our multi-family and CRE loan portfolios, we perform a monthly analysis, during which we review our historical prepayment rates and compare them to our projected prepayment rates. We continually review the actual prepayment rates to ensure that our projections are as accurate as possible, since prepayments on these types of loans are not as closely correlated to changes in interest rates as prepayments on one-to-four family loans tend to be. In addition, we review the call provisions, if any, in our borrowings and investment portfolios and, on a monthly basis, compare the actual calls to our projected calls to ensure that our projections are reasonable.

As of March 31, 2019, the impact of a 100-bp decline in market interest rates would have increased our projected prepayment rates for multi-family and CRE loans by a constant prepayment rate of 16.21% per annum. Conversely, the impact of a 100-bp increase in market interest rates would have decreased our projected prepayment rates for multi-family and CRE loans by a constant prepayment rate of 4.57% per annum.

Certain shortcomings are inherent in the method of analysis presented in the preceding Interest Rate Sensitivity Analysis. For example, although certain assets and liabilities may have similar maturities or periods to repricing, they may react in different degrees to changes in market interest rates. The interest rates on certain types of assets and liabilities may fluctuate in advance of the market, while interest rates on other types may lag behind changes in market interest rates. Additionally, certain assets, such as adjustable-rate loans, have features that restrict changes in interest rates both on a short-term basis and over the life of the asset. Furthermore, in the event of a change in interest rates, prepayment and early withdrawal levels would likely deviate from those assumed in calculating the table. Also, the ability of some borrowers to repay their adjustable-rate loans may be adversely impacted by an increase in market interest rates.

Interest rate sensitivity is also monitored through the use of a model that generates estimates of the change in our NPV over a range of interest rate scenarios. NPV is defined as the net present value of expected cash flows from assets, liabilities, and off-balance sheet contracts. The NPV ratio, under any interest rate scenario, is defined as the NPV in that scenario divided by the market value of assets in the same scenario. The model assumes estimated loan prepayment rates, reinvestment rates, and deposit decay rates similar to those utilized in formulating the preceding Interest Rate Sensitivity Analysis.

Based on the information and assumptions in effect at March 31, 2019, the following table reflects the estimated percentage change in our NPV, assuming the changes in interest rates noted:


Change in Interest Rates (in basis points)⁽¹⁾		Estimated Percentage Change in Net Portfolio Value
+100		(4.20)%
+200		(10.28)%
-100		(1.57)%

(1)	The impact of a 200-bp reduction in interest rates is not presented in view of the current level of the federal funds rate and other short-term interest rates.

The net changes in NPV presented in the preceding table are within the parameters approved by the Boards of Directors of the Company and the Banks.

As with the Interest Rate Sensitivity Analysis, certain shortcomings are inherent in the methodology used in the preceding interest rate risk measurements. Modeling changes in NPV requires that certain assumptions be made which may or may not reflect the manner in which actual yields and costs respond to changes in market interest rates. In this regard, the NPV Analysis presented above assumes that the composition of our interest rate sensitive assets and liabilities existing at the beginning of a period remains constant over the period being measured, and also assumes that a particular change in interest rates is reflected uniformly across the yield curve, regardless of the duration to maturity or repricing of specific assets and liabilities. Furthermore, the model does not take into account the benefit of any strategic actions we may take to further reduce our exposure to interest rate risk. Accordingly, while the NPV Analysis provides an indication of our interest rate risk exposure at a particular point in time, such measurements are not intended to, and do not, provide a precise forecast of the effect of changes in market interest rates on our net interest income, and may very well differ from actual results.

We also utilize an internal net interest income simulation to manage our sensitivity to interest rate risk. The simulation incorporates various market-based assumptions regarding the impact of changing interest rates on future levels of our financial assets and liabilities. The assumptions used in the net interest income simulation are inherently uncertain. Actual results may

differ significantly from those presented in the following table, due to the frequency, timing, and magnitude of changes in interest rates; changes in spreads between maturity and repricing categories; and prepayments, among other factors, coupled with any actions taken to counter the effects of any such changes.

Based on the information and assumptions in effect at March 31, 2019, the following table reflects the estimated percentage change in future net interest income for the next twelve months, assuming the changes in interest rates noted:


Change in Interest Rates (in basis points)⁽¹⁾⁽²⁾		Estimated Percentage Change in Future Net Interest Income
+100		(3.28)%
+200		(5.74)%
-100		4.25%

(1)	In general, short- and long-term rates are assumed to increase in parallel fashion across all four quarters and then remain unchanged.

(2)	The impact of a 200-bp reduction in interest rates is not presented in view of the current level of the federal funds rate and other short-term interest rates.

Future changes in our mix of assets and liabilities may result in greater changes to our gap, NPV, and/or net interest income simulation.

In the event that our NPV and net interest income sensitivities were to breach our internal policy limits, we would undertake the following actions to ensure that appropriate remedial measures were put in place:

•

Our ALCO Committee would inform the Board of Directors of the variance, and present recommendations to the Board regarding proposed courses of action to restore conditions to within-policy tolerances.

•

In formulating appropriate strategies, the ALCO Committee would ascertain the primary causes of the variance from policy tolerances, the expected term of such conditions, and the projected effect on capital and earnings.

Where temporary changes in market conditions or volume levels result in significant increases in risk, strategies may involve reducing open positions or employing synthetic hedging techniques to more immediately reduce risk exposure. Where variance from policy tolerances is triggered by more fundamental imbalances in the risk profiles of core loan and deposit products, a remedial strategy may involve restoring balance through natural hedges to the extent possible before employing synthetic hedging techniques. Other strategies might include:

•

Asset restructuring, involving sales of assets having higher risk profiles, or a gradual restructuring of the asset mix over time to affect the maturity or repricing schedule of assets;

•

Liability restructuring, whereby product offerings and pricing are altered or wholesale borrowings are employed to affect the maturity structure or repricing of liabilities;

•

Expansion or shrinkage of the balance sheet to correct imbalances in the repricing or maturity periods between assets and liabilities; and/or

•

Use or alteration of off-balance sheet positions, including interest rate swaps, caps, floors, options, and forward purchase or sales commitments.

In connection with our net interest income simulation modeling, we also evaluate the impact of changes in the slope of the yield curve. At March 31, 2019, our analysis indicated that an immediate inversion of the yield curve would be expected to result in a 0.07% decrease in net interest income; conversely, an immediate steepening of the yield curve would be expected to result in a 4.99% increase in net interest income.

Liquidity

We manage our liquidity to ensure that cash flows are sufficient to support our operations, and to compensate for any temporary mismatches between sources and uses of funds caused by variable loan and deposit demand.

We monitor our liquidity daily to ensure that sufficient funds are available to meet our financial obligations. Our most liquid assets are cash and cash equivalents, which totaled $990.0 million and $1.5 billion, respectively, at March 31, 2019 and December 31, 2018. As in the past, our portfolios of loans and securities provided liquidity in the first three months of the year, with cash flows from the repayment and sale of loans totaling $1.7 billion and cash flows from the repayment and sale of securities totaling $589.0 million.

Additional liquidity stems from the retail, institutional, and municipal deposits we gather and from our use of wholesale funding sources, including brokered deposits and wholesale borrowings. We also have access to the Banks’ approved lines of credit with various counterparties, including the FHLB-NY. The availability of these wholesale funding sources is generally based on the available amount of mortgage loan collateral under a blanket lien we have pledged to the respective institutions and, to a lesser extent, the available amount of securities that may be pledged to collateralize our borrowings. At March 31, 2019, our available borrowing capacity with the FHLB-NY was $8.9 billion. In addition, the Bank had $5.7 billion of available-for-sale securities, at that date.

Furthermore, the Bank has agreements with the FRB-NY that enables it to access the discount window as a further means of enhancing their liquidity if need be. In connection with their agreements, the Bank pledged certain loans and securities to collateralize any funds they may borrow. At March 31, 2019, the maximum amount the Bank could borrow from the FRB-NY was $1.5 billion. There were no borrowings against either of these lines of credit at that date.

Our primary investing activity is loan production. In the first three months of 2019, the volume of loans originated for investment was $2.0 billion. During this time, the net cash used in investing activities totaled $367.6 million. Our operating activities provided net cash of $158.4 million, while the net cash used in our financing activities totaled $275.8 million.

CDs due to mature in one year or less from March 31, 2019 totaled $10.5 billion, representing 82.4% of total CDs at that date. Our ability to retain these CDs and to attract new deposits depends on numerous factors, including customer satisfaction, the rates of interest we pay on our deposits, the types of products we offer, and the attractiveness of their terms. However, there are times when we may choose not to compete for such deposits, depending on the availability of lower-cost funding, the competitiveness of the market and its impact on pricing, and our need for such deposits to fund loan demand, as previously discussed.

The Parent Company is a separate legal entity from the Bank and must provide for its own liquidity. In addition to operating expenses and any share repurchases, the Parent Company is responsible for paying dividends declared to our shareholders. As a Delaware corporation, the Parent Company is able to pay dividends either from surplus or, in case there is no surplus, from net profits for the fiscal year in which the dividend is declared and/or the preceding fiscal year.

In each of the four quarters of 2018, the Company was required to receive a non-objection from the FRB to pay all dividends; non-objections were received from the FRB in all four quarters of the year. Beginning in 2019, the Company no longer is required to receive non-objection from the FRB to pay dividends.

The Parent Company’s ability to pay dividends may also depend, in part, upon dividends it receives from the Bank. The ability of the Community Bank to pay dividends and other capital distributions to the Parent Company is generally limited by New York State Banking Law and regulations, and by certain regulations of the FDIC. In addition, the Superintendent of the New York State Department of Financial Services (the “Superintendent”), the FDIC, and the FRB, for reasons of safety and soundness, may prohibit the payment of dividends that are otherwise permissible by regulations.

Under New York State Banking Law, a New York State-chartered stock-form savings bank or commercial bank may declare and pay dividends out of its net profits, unless there is an impairment of capital. However, the approval of the Superintendent is required if the total of all dividends declared in a calendar year would exceed the total of a bank’s net profits for that year, combined with its retained net profits for the preceding two years. In the three months ended March 31, 2019, the Bank paid dividends totaling $95.0 million to the Parent Company, leaving $265.7 million they could dividend to the Parent Company without regulatory approval at that date. Additional sources of liquidity available to the Parent Company at March 31, 2019 included $170.2 million in cash and cash equivalents. If the Bank was to apply to the Superintendent for approval to make a dividend or capital distribution in excess of the dividend amounts permitted under the regulations, there can be no assurance that such application would be approved.

Capital Position

On March 17, 2017, we issued 515,000 shares of preferred stock. The offering generated capital of $502.8 million, net of underwriting and other issuance costs, for general corporate purposes, with the bulk of the proceeds being distributed to the Community Bank.

On October 24, 2018, the Company announced that it had received regulatory approval to repurchase its common stock. Accordingly, the Board of Directors approved a $300 million common share repurchase program. The repurchase program was funded through the issuance of a like amount of subordinated notes. To date the Company has repurchased a total of 23.9 million shares at an average price of $9.54 or an aggregate purchase of $227.9 million, leaving $72.1 million remaining under the current authorization.

Common stockholders’ equity represented 11.75% and 11.85% of total assets at March 31, 2019, and December 31, 2018, and was equivalent to a book value per common share of $13.11, and $12.99 at the respective dates. We calculate book value per common share by dividing the amount of common stockholders’ equity at the end of a period by the number of common shares outstanding at the same date. At March 31, 2019 and December 31, 2018, we had outstanding common shares of 467,236,136 and 473,536,604, respectively.

Tangible common stockholders’ equity was relatively stable at $3.7 billion, representing 7.44% of tangible assets and a tangible book value per common share of $7.92 at March 31, 2019. At December 31, 2018, tangible common stockholders’ equity totaled $3.7 billion or 7.51% of tangible assets and a tangible book value per common share of $7.85.

We calculate tangible common stockholders’ equity by subtracting the amount of goodwill recorded at the end of a period from the amount of common stockholders’ equity recorded at the same date. At March 31, 2019 and December 31, 2018 we recorded goodwill of $2.4 billion, respectively, at the corresponding dates. (See the discussion and reconciliations of stockholders’ equity, common stockholders’ equity, and tangible common stockholders’ equity; total assets and tangible assets; and the related financial measures that appear earlier in this report.)

Stockholders’ equity, common stockholders’ equity, and tangible common stockholders’ equity include AOCL, which decreased $30.7 million from the balance at the end of last year and increased $1.2 million from the year-ago quarter to $57.0 million at March 31, 2019. The year-to-date increase was primarily the result of a $28.9 million increase in the net unrealized gain on available-for-sale securities, net of tax, to $18.3 million and a $30.7 million decrease in net unrealized loss on pension and post-retirement obligations, net of tax, to $69.3 million.

At March 31, 2019, our capital measures continued to exceed the minimum federal requirements for a bank holding company and for a bank. The following table sets forth our common equity tier 1, tier 1 risk-based, total risk-based, and leverage capital amounts and ratios on a consolidated basis and for the Bank on a stand-alone basis, as well as the respective minimum regulatory capital requirements, at that date:

Regulatory Capital Analysis (the Company)


	Risk-Based Capital
At March 31, 2019	Common Equity Tier 1					Tier 1					Total					Leverage Capital
(dollars in thousands)	Amount		Ratio			Amount		Ratio			Amount		Ratio			Amount		Ratio
Total capital	$	3,759,748		10.27	%	$	4,262,587		11.65	%	$	5,061,796		13.83	%	$	4,262,587		8.68	%
Minimum for capital adequacy purposes		1,647,190		4.50			2,196,254		6.00			2,928,338		8.00			1,964,854		4.00

Excess	$	2,112,558		5.77	%	$	2,066,333		5.65	%	$	2,133,458		5.83	%	$	2,297,733		4.68	%

At March 31, 2019, our total risk-based capital ratio exceeded the minimum requirement for capital adequacy purposes by 583 bp and the fully-phased in capital conservation buffer by 333 bp.

Regulatory Capital Analysis (New York Community Bank)


	Risk-Based Capital
At March 31, 2019	Common Equity Tier 1					Tier 1					Total					Leverage Capital
(dollars in thousands)	Amount		Ratio			Amount		Ratio			Amount		Ratio			Amount		Ratio
Total capital	$	4,745,185		12.97	%	$	4,745,185		12.97	%	$	4,902,922		13.40	%	$	4,745,185		9.66	%
Minimum for capital adequacy purposes		1,646,714		4.50			2,195,619		6.00			2,927,492		8.00			1,964,144		4.00

Excess	$	3,098,471		8.47	%	$	2,549,566		6.97	%	$	1,975,430		5.40	%	$	2,781,041		5.66	%

The Bank also exceeded the minimum capital requirements to be categorized as “Well Capitalized.” To be categorized as well capitalized, a bank must maintain a minimum common equity tier 1 ratio of 6.50%; a minimum tier 1 risk-based capital ratio of 8.00%; a minimum total risk-based capital ratio of 10.00%; and a minimum leverage capital ratio of 5.00%.

Earnings Summary for the Three Months Ended March 31, 2019

The Company reported net income of $97.6 million for the three months ended March 31, 2019, down 8.4% from the $106.6 million for the three months ended March 31, 2018. Net income available to common shareholders was $89.4 million, down 9.1% compared to $98.3 million in the year-ago first quarter. In the current first quarter period, the Company paid $3.5 million in severance costs and $5.5 million related to branch rationalization costs, whereas no such costs were incurred in the first quarter of last year. Net income was also impacted by a $70.8 million increase in interest expense on interest-bearing liabilities compared to the year-ago quarter. Diluted earnings per common share for the three months ended March 31, 2019 was $0.19 as compared to $0.20 for the three months ended March 31, 2018.

Net Interest Income

Net interest income is our primary source of income. Its level is a function of the average balance of our interest-earning assets, the average balance of our interest-bearing liabilities, and the spread between the yield on such assets and the cost of such liabilities. These factors are influenced by both the pricing and mix of our interest-earning assets and our interest-bearing liabilities which, in turn, are impacted by various external factors, including the local economy, competition for loans and deposits, the monetary policy of the FOMC, and market interest rates.

Net interest income is also influenced by the level of prepayment income primarily generated in connection with the prepayment of our multi-family and CRE loans, as well as securities. Since prepayment income is recorded as interest income, an increase or decrease in its level will also be reflected in the average yields (as applicable) on our loans, securities, and interest-earning assets, and therefore in our interest rate spread and net interest margin.

It should be noted that the level of prepayment income on loans recorded in any given period depends on the volume of loans that refinance or prepay during that time. Such activity is largely dependent on such external factors as current market conditions, including real estate values, and the perceived or actual direction of market interest rates. In addition, while a decline in market interest rates may trigger an increase in refinancing and, therefore, prepayment income, so too may an increase in market interest rates. It is not unusual for borrowers to lock in lower interest rates when they expect, or see, that market interest rates are rising rather than risk refinancing later at a still higher interest rate.

Linked-Quarter and Year-Over-Year Comparison

Both the year-over-year and sequential decline in net interest income was primarily attributable to an increase in our cost of funds, as short-term interest rates rose throughout the second half of 2017 and all of 2018. This was partially offset by higher yields on our loan portfolio, as well as continued loan growth. Details of the decline in net interest income follow:

•

Interest income of $446.2 million in the current first quarter increased $41.8 million from the year earlier quarter and $3.3 million from the amount reported in the trailing quarter. Interest income from loans of $379.8 million increased $23.9 million compared to the year-ago quarter and $4.5 million compared to the prior quarter, while interest income from securities and money market investments increased $18.0 million from the year-ago quarter, but decreased $1.2 million from the trailing quarter to $66.4 million.

•

Interest income was driven by a $458.0 million decrease in average earning assets to $47.0 billion offset by a seven bp increase on the average yield to 3.80%. The decrease in average earning assets was the result of lower balances in cash and cash equivalents, while the average yields for loans, securities and cash all increased.

•

Interest expense rose $70.8 million on a year-over-year basis and $9.2 million sequentially to $204.8 million, primarily due to higher levels of interest expense on interest-bearing deposits largely driven by higher CD balances and higher costs associated with those balances.

Net Interest Margin

The direction of the Company’s net interest margin was consistent with that of its net interest income, and generally was driven by the same factors as those described above. At 2.03%, the margin was six bps narrower than the trailing-quarter measure and 39-bp narrower than the margin recorded in the first quarter of last year.

The following table summarizes the contribution of loan and securities prepayment income on the Company’s interest income and net interest margin in the periods noted:


	For the Three Months Ended									Mar. 31, 2019 compared to
	Mar. 31, 2019			Dec. 31, 2018			Mar. 31, 2018			Dec. 31, 2018			Mar. 31, 2018
(dollars in thousands)
Total Interest Income	$	446,174		$	442,872		$	404,325			1	%		10	%

Prepayment Income:
Loans	$	9,341		$	9,101		$	11,779			3	%		-21	%
Securities		227			353			2,933			-36	%		-92	%

Total prepayment income	$	9,568		$	9,454		$	14,712			1	%		-35	%

GAAP Net Interest Margin		2.03	%		2.09	%		2.42	%		-6	bp		-39	bp
Less:
Prepayment income from loans		8	bp		8	bp		11	bp		0	bp		-3	bp
Prepayment income from securities		—			—			2			0	bp		-2	bp

Plus:
Total prepayment income contribution to and subordinated debt impact on net interest margin		8	bp		8	bp		13	bp		0	bp		-5	bp

Adjusted Net Interest Margin (non-GAAP)⁽¹⁾		1.95	%		2.01	%		2.29	%		-6	bp		-34	bp

(1)	“Adjusted net interest margin” is a non-GAAP financial measure as more fully discussed below.

While our net interest margin, including the contribution of prepayment income, is recorded in accordance with GAAP, adjusted net interest margin, which excludes the contribution of prepayment income, is not. Nevertheless, management uses this non-GAAP measure in its analysis of our performance, and believes that this non-GAAP measure should be disclosed in this report and other investor communications for the following reasons:

Adjusted net interest margin gives investors a better understanding of the effect of prepayment income on our net interest margin. Prepayment income in any given period depends on the volume of loans that refinance or prepay, or securities that prepay, during that period. Such activity is largely dependent on external factors such as current market conditions, including real estate values, and the perceived or actual direction of market interest rates.

Adjusted net interest margin is among the measures considered by current and prospective investors, both independent of, and in comparison with, our peers.

Adjusted net interest margin should not be considered in isolation or as a substitute for net interest margin, which is calculated in accordance with GAAP. Moreover, the manner in which we calculate this non-GAAP measure may differ from that of other companies reporting a non-GAAP measure with a similar name.

The following table sets forth certain information regarding our average balance sheet for the quarters indicated, including the average yields on our interest-earning assets and the average costs of our interest-bearing liabilities. Average yields are calculated by dividing the interest income produced by the average balance of interest-earning assets. Average costs are calculated by dividing the interest expense produced by the average balance of interest-bearing liabilities. The average balances for the quarters are derived from average balances that are calculated daily. The average yields and costs include fees, as well as premiums and discounts (including mark-to-market adjustments from acquisitions), that are considered adjustments to such average yields and costs.

Net Interest Income Analysis


	For the Three Months Ended
	March 31, 2019							December 31, 2018							March 31, 2018
(dollars in thousands)	Average Balance		Interest		Average Yield/ Cost			Average Balance		Interest		Average Yield/ Cost			Average Balance		Interest		Average Yield/ Cost
Assets:
Interest-earning assets:
Mortgage and other loans, net ⁽¹⁾	$	39,890,669	$	379,790		3.81	%	$	39,776,600	$	375,307		3.77	%	$	38,290,886	$	355,917		3.72	%
Securities ⁽²⁾⁽³⁾		6,263,933		61,037		3.91			5,878,349		57,098		3.88			4,066,613		39,992		3.95
Interest-earning cash and cash equivalents		892,187		5,347		2.43			1,849,838		10,467		2.24			2,134,976		8,416		1.60

Total interest-earning assets		47,046,789		446,174		3.80			47,504,787		442,872		3.73			44,492,475		404,325		3.64
Non-interest-earning assets		4,570,768							4,274,215							4,369,908

Total assets	$	51,617,557						$	51,779,002						$	48,862,383

Liabilities and Stockholders’ Equity:
Interest-bearing deposits:
Interest-bearing checking and money market accounts	$	11,478,820	$	50,159		1.77	%	$	11,602,054	$	48,726		1.67	%	$	12,627,483	$	34,369		1.10	%
Savings accounts		4,669,824		8,083		0.70			4,743,586		7,818		0.65			5,063,110		7,221		0.58
Certificates of deposit		12,298,274		67,775		2.23			11,731,234		61,085		2.07			8,804,862		30,515		1.41

Total interest-bearing deposits		28,446,918		126,017		1.80			28,076,874		117,629		1.66			26,495,455		72,105		1.10
Borrowed funds		13,491,860		78,832		2.37			14,046,944		78,007		2.20			12,927,318		61,922		1.94

Total interest-bearing liabilities		41,938,778		204,849		1.98			42,123,818		195,636		1.84			39,422,773		134,027		1.38
Non-interest-bearing deposits		2,477,420							2,631,408							2,401,542
Other liabilities		594,077							275,959							247,498

Total liabilities		45,010,275							45,031,185							42,071,813
Stockholders’ equity		6,607,282							6,747,817							6,790,570

Total liabilities and stockholders’ equity	$	51,617,557						$	51,779,002						$	48,862,383

Net interest income/interest rate spread			$	241,325		1.82	%			$	247,236		1.89	%			$	270,298		2.26	%

Net interest margin						2.03	%						2.09	%						2.42	%

Ratio of interest-earning assets to interest-bearing liabilities						1.12	x						1.13	x						1.13	x

(1)	Amounts are net of net deferred loan origination costs/(fees) and the allowances for loan losses, and include loans held for sale and non-performing loans.

(2)	Amounts are at amortized cost.

(3)	Includes FHLB stock.

(Recovery of) Provision for Loan Losses

The provision for losses on loans is based on the methodology used by management in calculating the allowance for losses on such loans. Reflecting this methodology, which is discussed in detail under “Critical Accounting Policies,” we recorded a recovery of loan losses of $1.2 million in the current first quarter, as compared to a provision for loan losses of $2.8 million for the three months ended December 31, 2018 and a provision for loan losses of $9.6 million for the three months ended March 31, 2018.

For additional information about our provisions for and recoveries of loan losses, see the discussion of the allowances for loan losses under “Critical Accounting Policies” and the discussion of “Asset Quality” that appear earlier in this report.

Non-Interest Income

We generate non-interest income through a variety of sources, including—among others— fee income (in the form of retail deposit fees and charges on loans); income from our investment in BOLI; gains on the sale of securities; and revenues produced through the sale of third-party investment products.

Non-interest income totaled $24.8 million in the current first quarter, up $1.7 million or 7% compared to the fourth quarter of 2018 and up $1.9 million or 8.4% compared to the first quarter of 2018. The current first quarter included $7.0 million of net gains on the sale of securities compared to a $1.2 million net loss in the prior quarter and a net loss of $466,000 in the year-ago quarter. Additionally, during the current quarter, the Company sold its wealth management business, Peter B. Cannell & Co. This resulted in a $5.1 million or 59% decrease in other income, which was offset by the net gain on the sale of securities.

The following table summarizes our non-interest income for the respective periods:

Non-Interest Income Analysis


	For the Three Months Ended
(in thousands)	March 31, 2019		December 31, 2018			March 31, 2018
Fee income	$	7,228	$	7,709		$	7,327
BOLI income		6,975		7,828			6,804
Net gain (loss) on securities		6,987		(1,184	)		(466	)
Other income:
Third-party investment product sales		2,896		2,991			3,075
Other		699		5,729			6,117

Total other income		3,595		8,720			9,192

Total non-interest income	$	24,785	$	23,073		$	22,857

Non-Interest Expense

Non-interest expense consists of compensation and benefits expense, occupancy and equipment expense, and G&A expense.

Total non-interest expense for the current first quarter was $138.8 million, up $3.8 million or 3% compared to the fourth quarter of 2018 and down modestly compared to the first quarter of 2018. Included in the current quarter’s results were certain items which together totaled $9.0 million: $3.5 million in severance costs and $5.5 million related to branch rationalization costs. Excluding these two items, total non-interest expenses, on a non-GAAP basis, would have totaled $129.7 million this quarter, down $5.2 million or 4% compared to the prior quarter and down $9.4 million or 7% compared to the year-ago quarter.The efficiency ratio for the first quarter of 2019 was 52.15% compared to 49.92% for the fourth quarter of 2018 and 47.45% for the first quarter of 2018. Excluding the two items, the adjusted efficiency ratio for the first quarter of 2019 would have been 48.75%, down 117 basis points compared to the prior quarter, but up 130 bp compared to the first quarter of 2018.

Income Tax Expense

Income tax expense for the three months ended March 31, 2019 was $31.0 million, relatively unchanged from the three months ended December 31, 2018, but down $6.9 million or 18% compared to the three months ended March 31, 2018. The effective tax rate for the current first quarter was 24.10%, up modestly from 23.27% recorded in the fourth quarter of 2018 and down from the 26.25% recorded in the first quarter of 2018.

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Quantitative and qualitative disclosures about the Company’s market risk were presented on pages 73 and 77 of our 2018 Annual Report on Form 10-K, filed with the SEC on March 1, 2019. Subsequent changes in the Company’s market risk profile and interest rate sensitivity are detailed in the discussion entitled “Management of Market and Interest Rate Risk” earlier in this quarterly report.

ITEM 4.

CONTROLS AND PROCEDURES

(a) Evaluation of Disclosure Controls and Procedures

Disclosure controls and procedures are the controls and other procedures that are designed to ensure that information required to be disclosed in the reports that the Company files or submits under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the U.S. Securities and Exchange Commission’s (the “SEC’s”) rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in the reports that the Company files or submits under the Exchange Act is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

As of the end of the period covered by this report, the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to Rule 13a-15(b), as adopted by the SEC under the Securities Exchange Act of 1934 (the “Exchange Act”). Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of the end of the period.

(b) Changes in Internal Control over Financial Reporting

There have not been any changes in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II – OTHER INFORMATION

Item 1.

Legal Proceedings

The Company is involved in various legal actions arising in the ordinary course of its business. All such actions in the aggregate involve amounts that are believed by management to be immaterial to the financial condition and results of operations of the Company.

Item 1A.

Risk Factors

In addition to the other information set forth in this report, readers should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018, as such factors could materially affect the Company’s business, financial condition, or future results of operations. There have been no material changes to the risk factors disclosed in the Company’s 2018 Annual Report on Form 10-K.

The risks described in the 2018 Annual Report on Form 10-K are not the only risks that the Company faces. Additional risks and uncertainties not currently known to the Company, or that the Company currently deems to be immaterial, also may have a material adverse impact on the Company’s business, financial condition, or results of operations.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

Shares Repurchased Pursuant to the Company’s Stock-Based Incentive Plans

Participants in the Company’s stock-based incentive plans may have shares of common stock withheld to fulfill the income tax obligations that arise in connection with the vesting of their stock awards. Shares that are withheld for this purpose are repurchased pursuant to the terms of the applicable stock-based incentive plan, rather than pursuant to the share repurchase program authorized by the Board of Directors, described below.

Shares Repurchased Pursuant to the Board of Directors’ Share Repurchase Authorization

On October 23, 2018, the Board of Directors authorized the repurchase of up to $300 million of the Company’s common stock. Under said authorization, shares may be repurchased on the open market or in privately negotiated transactions.

Shares that are repurchased pursuant to the Board of Directors’ authorization, and those that are repurchased pursuant to the Company’s stock-based incentive plans, are held in our Treasury account and may be used for various corporate purposes, including, but not limited to, merger transactions and the vesting of restricted stock awards.

As indicated in the table below, during the three months ended March 31, 2019, the Company allocated 730,488 shares or $7.7 million toward the repurchase of shares tied to its stock-based incentive plans. Also, during the first quarter of the year, the Company repurchased $67.1 million or 7.1 million shares of its common stock under its recently authorized share repurchase program, leaving $72.1 million remaining under the current repurchase authorization at March 31, 2019.


(dollars in thousands, except per share data)
First Quarter 2019	Total Shares of Common Stock Repurchased		Average Price Paid per Common Share		Total Allocation
January 1 – January 31		7,670,751	$	9.53	$	73,075
February 1 – February 28		316		12.05		4
March 1 – March 31		145,161		11.78		1,709

Total shares repurchased		7,816,228		9.57	$	74,788

Item 3.

Defaults upon Senior Securities

Not applicable.

Item 4.

Mine Safety Disclosures

Not applicable.

Item 5.

Other Information

Not applicable.

Item 6.

Exhibits


Exhibit No.

3.1		Amended and Restated Certificate of Incorporation. ⁽¹⁾

3.2		Certificates of Amendment of Amended and Restated Certificate of Incorporation. ⁽²⁾

3.3		Certificate of Amendment of Amended and Restated Certificate of Incorporation. ⁽³⁾

3.4		Certificate of Designations of the Registrant with respect to the Series A Preferred Stock, dated March 16, 2017, filed with the Secretary of State of the State of Delaware and effective March 16, 2017. ⁽⁴⁾

3.5		Amended and Restated Bylaws. ⁽⁵⁾

4.1		Specimen Stock Certificate. ⁽⁶⁾

4.2		Deposit Agreement, dated as of March 16, 2017, by and among the Registrant, Computershare, Inc., and Computershare Trust Company, N.A., as joint depositary, and the holders from time to time of the depositary receipts described therein. ⁽⁷⁾

4.3		Form of certificate representing the Series A Preferred Stock. ⁽⁷⁾

4.4		Form of depositary receipt representing the Depositary Shares. ⁽⁷⁾

4.5		Registrant will furnish, upon request, copies of all instruments defining the rights of holders of long-term debt instruments of the registrant and its consolidated subsidiaries.

31.1		Rule 13a-14(a) Certification of Chief Executive Officer of the Company in accordance with Section 302 of the Sarbanes-Oxley Act of 2002 (attached hereto).

31.2		Rule 13a-14(a) Certification of Chief Financial Officer of the Company in accordance with Section 302 of the Sarbanes-Oxley Act of 2002 (attached hereto).

32.0		Section 1350 Certifications of the Chief Executive Officer and Chief Financial Officer of the Company in accordance with Section 906 of the Sarbanes-Oxley Act of 2002 (attached hereto).

101		The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2019, formatted in XBRL (Extensible Business Reporting Language): (i) the Consolidated Statements of Condition, (ii) the Consolidated Statements of Operations and Comprehensive Income, (iii) the Consolidated Statement of Changes in Stockholders’ Equity, (iv) the Consolidated Statements of Cash Flows, and (v) the Notes to the Consolidated Financial Statements.

(1)	Incorporated by reference to Exhibits filed with the Company’s Form 10-Q for the quarterly period ended March 31, 2001 (File No. 0-22278).

(2)	Incorporated by reference to Exhibits filed with the Company’s Form 10-K for the year ended December 31, 2003 (File No. 1-31565).

(3)	Incorporated by reference to Exhibits to the Company’s Form 8-K filed with the Securities and Exchange Commission on April 27, 2016 (File No. 1-31565).

(4)	Incorporated by reference to Exhibits of the Company’s Registration Statement on Form 8-A (File No. 333-210919), as filed with the Securities and Exchange Commission on March 16, 2017.

(5)	Incorporated by reference to Exhibits filed with the Company’s Form 10-K for the year ended December 31, 2016 (File No. 1-31565).

(6)	Incorporated by reference to Exhibits filed with the Company’s Form 10-Q for the quarterly period ended September 30, 2017 (File No. 1-31565).

(7)	Incorporated by reference to Exhibits filed with the Company’s Form 8-K filed with the Securities and Exchange Commission on March 17, 2017 (File No. 1-31565).

NEW YORK COMMUNITY BANCORP, INC.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


		New York Community Bancorp, Inc.
		(Registrant)

DATE: May 10, 2019	BY:	/s/ Joseph R. Ficalora
		Joseph R. Ficalora President, Chief Executive Officer, and Director

DATE: May 10, 2019	BY:	/s/ Thomas R. Cangemi
		Thomas R. Cangemi Senior Executive Vice President and Chief Financial Officer