NEW YORK COMMUNITY BANCORP, INC. For the purpose of this Quarterly Report on Form 10-Q, the words "we," "us," "our," and the "Company" are used to refer toNew 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 byNew 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, including higher inflation and its impacts, 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 transition process;
•
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;
•
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, including timely obtaining regulatory approvals for our pending acquisition of Flagstar Bancorp, Inc.;
•
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, including the pending acquisition of Flagstar Bancorp, Inc.;
•
potential exposure to unknown or contingent liabilities of companies we have acquired, may acquire, or target for acquisition, including the pending acquisition of Flagstar Bancorp, Inc.;
37
--------------------------------------------------------------------------------•
the success of our previously announced investment in, and partnership with,Figure Technologies, Inc. , a FinTech company focusing on payment and lending via blockchain technology;
•
the ability to invest effectively in new information technology systems and platforms;
•
changes in future ACL requirements under relevant accounting and regulatory requirements;
•
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 (the New York Housing Stability and Tenant Protection Act of 2019), 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 theU.S. Government , including policies of theU.S. Department of the Treasury and theBoard of Governors of theFederal Reserve System ;
•
changes in accounting principles, policies, practices, and guidelines;
•
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 to federal, state, and local income tax laws;
•
changes in our credit ratings or in our ability to access the capital markets;
•
increases in our
•
legislative and regulatory initiatives related to climate change;
•
the potential impact to the Company from climate change, including higher regulatory compliance, increased expenses, operational changes, and reputational risks;
•
unforeseen or catastrophic events including natural disasters, war, terrorist activities, and the emergence of a pandemic;
•
the impacts related to or resulting fromRussia's military action inUkraine , including the broader impacts to financial markets and the global macroeconomic and geopolitical environment;
•
the effects of COVID-19, which includes, but are not limited to, the length of time that the pandemic continues, the effectiveness and acceptance of the COVID-19 vaccination program, the potential imposition of further restrictions on business operations and/or travel or movement in the future, the remedial actions and stimulus measures adopted by federal, state, and local governments, the health of our employees and the inability of employees to work due to illness, quarantine, or government mandates, the business continuity plans of our customers and our vendors, the increased likelihood of cybersecurity risk, data breaches, or fraud due to employees working from home, the ability of our borrowers to continue to repay their loan obligations, the lack of property transactions and asset sales, potential impact on collateral values, and the effect of the pandemic on the general economy and businesses of our borrowers; and
•
other economic, competitive, governmental, regulatory, technological, and geopolitical factors affecting our operations, pricing, and services.
38
--------------------------------------------------------------------------------In addition, the timing and occurrence or non-occurrence of events may be subject to circumstances beyond our control.
Furthermore, on an ongoing basis, we evaluate opportunities to expand through mergers and acquisitions and opportunities for strategic combinations with other banking organizations. Our evaluation of such opportunities involves discussions with other parties, due diligence, and negotiations. As a result, we may decide to enter into definitive arrangements regarding such opportunities at any time.
In addition to the risks and challenges described above, these types of transactions involve a number of other risks and challenges, including:
•
the ability to successfully integrate branches and operations and to implement appropriate internal controls and regulatory functions relating to such activities;
•
the ability to limit the outflow of deposits, and to successfully retain and manage any loans;
•
the ability to attract new deposits, and to generate new interest-earning assets, in geographic areas that have not been previously served;
•
the success in deploying any liquidity arising from a transaction into assets bearing sufficiently high yields without incurring unacceptable credit or interest rate risk;
•
the ability to obtain cost savings and control incremental non-interest expense;
•
the ability to retain and attract appropriate personnel;
•
the ability to generate acceptable levels of net interest income and non-interest income, including fee income, from acquired operations;
•
the diversion of management's attention from existing operations;
•
the ability to address an increase in working capital requirements; and
•
limitations on the ability to successfully reposition our post-merger balance sheet when deemed appropriate.
See Part I, Item 1A, Risk Factors, in our Form 10-K for the year endedDecember 31, 2021 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. 39 --------------------------------------------------------------------------------
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:
1.
Tangible common stockholders' equity is an important indication of the Company's ability to grow organically and through business combinations, as well as its ability to pay dividends and to engage in various capital management strategies.
2.
Tangible book value per common share and the ratio of tangible common stockholders' equity to tangible assets are among the capital measures considered by current and prospective investors, both independent of, and in comparison with, the Company's peers.
Tangible common stockholders' equity, tangible assets, and the related non-GAAP
measures should not be considered in isolation or as a substitute for
stockholders' equity, common stockholders' equity, total assets, or any 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 At or for the
Three Months Ended Six Months Ended
June 30, March 31, June 30, June 30, June 30,
(dollars in millions) 2022 2022 2021 2022 2021
Total Stockholders' Equity $ 6,824 $ 6,909 $ 6,916 $ 6,824 $ 6,916
Less: Goodwill (2,426 ) (2,426 ) (2,426 ) (2,426 ) (2,426 )
Preferred stock (503 ) (503 ) (503 ) (503 ) (503 )
Tangible common stockholders'
equity $ 3,895 $ 3,980 $ 3,987 $ 3,895 $ 3,987
Total Assets $ 63,093 $ 61,005 $ 57,469 $ 63,093 $ 57,469
Less: Goodwill (2,426 ) (2,426 ) (2,426 ) (2,426 ) (2,426 )
Tangible Assets $ 60,667 $ 58,579 $ 55,043 $ 60,667 $ 55,043
Average common stockholders'
equity $ 6,398 $ 6,543 $ 6,368 $ 6,470 $ 6,369
Less: Average goodwill (2,426 ) (2,426 ) (2,426 ) (2,426 ) (2,426 )
Average tangible common
stockholders' equity $ 3,972 $ 4,117 $ 3,942 $ 4,044 $ 3,943
Average Assets $ 61,988 $ 59,894 $ 58,114 $ 60,946 $ 57,215
Less: Average goodwill (2,426 ) (2,426 ) (2,426 )
(2,426 ) (2,426 )
Average tangible assets
GAAP MEASURES: Return on average assets (1) 1.10 % 1.04 % 1.04 % 1.07 % 1.04 % Return on average common stockholders' equity (2) 10.18 8.98 9.00 9.58 8.81 Book value per common share$ 13.56 $ 13.72 $ 13.79 $ 13.56 $ 13.79 Common stockholders' equity to total assets 10.02 10.50 11.16 10.02 11.16 NON-GAAP MEASURES: Return on average tangible assets (1) 1.17 % 1.11 % 1.09 % 1.14 % 1.08 % Return on average tangible common stockholders' equity (2) 16.73 14.76 14.54 15.73 14.23 Tangible book value per common share$ 8.35 $ 8.52 $ 8.57 $ 8.35 $ 8.57 Tangible common stockholders' equity to tangible assets 6.42 6.79 7.24 6.42 7.24 (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.
40
--------------------------------------------------------------------------------Executive Summary
New York Community Bancorp, Inc. is the holding company forNew York Community Bank , aNew York State -chartered savings bank, headquartered inHicksville, New York . The Bank is subject to regulation by the NYSDFS, theFDIC , and theCFPB . In addition, the holding company is subject to regulation by the FRB, theSEC , and to the requirements of the NYSE, where shares of our common stock trade under the symbol "NYCB" and shares of our preferred stock trade under the symbol "NYCB PA". Reflecting our growth through a series of acquisitions, the Company currently operates 237 branch locations through eight local divisions, each with a history of service and strength. InNew York , we operate asQueens County Savings Bank ,Roslyn Savings Bank ,Richmond County Savings Bank ,Roosevelt Savings Bank , andAtlantic Bank ; inNew Jersey asGarden State Community Bank ; inOhio as theOhio Savings Bank ; and asAmTrust Bank inArizona andFlorida .
Second Quarter 2022 Overview
AtJune 30, 2022 , total assets were$63.1 billion , up$3.6 billion or 12% annualized compared toDecember 31, 2021 , and up$2.1 billion or 14% annualized compared toMarch 31, 2022 . Both the year-to-date and linked-quarter growth was driven by significant loan and deposit growth, offset partially by a decline in wholesale borrowings.
Total loans held for investment increased
On the liability side, total deposits rose$6.2 billion or 35% annualized compared toDecember 31, 2021 and increased$3.3 billion during the second quarter, to$41.2 billion , also up 35% annualized on a linked-quarter basis. Once again, the deposit growth was driven by our BaaS business and loan-related deposits. Given the strong deposit growth during the second quarter, wholesale borrowings declined to$13.7 billion atJune 30, 2022 , down$2.3 billion or 28% annualized compared toDecember 31, 2021 , and down$1.0 billion on a linked-quarter basis, also down 28% annualized, For the three months endedJune 30, 2022 , the Company reported net income of$171 million , up 13% compared to the$152 million the Company reported for the three months endedJune 30, 2021 . Net income available to common stockholders for the three months endedJune 30, 2022 totaled$163 million , also up 13% compared to the$144 million the Company reported for three months endedJune 30, 2021 . Diluted EPS were$0.34 for the three months endedJune 30, 2022 , up 13% compared to the$0.30 the Company reported for the three months endedJune 30, 2021 . Included for the three months endedJune 30, 2022 are$4 million in merger-related expenses compared to$10 million for the three months endedJune 30, 2021 . Also included for the three months endedJune 30, 2021 was a revaluation on our deferred taxes related to a change in theNew York State tax rate of$2 million compared to no such item in the current second quarter. For the six months endedJune 30, 2022 , net income totaled$326 million compared to$297 million for the six months endedJune 30, 2021 , up 10%. Net income available to common stockholders for the six months endedJune 30, 2022 was$310 million , up 10% compared to$281 million the Company reported for the six months endedJune 30, 2021 . Diluted EPS for the six months endedJune 30, 2022 totaled$0.66 , up 10% compared to diluted EPS of$0.60 the Company reported for the six months endedJune 30, 2021 . Included in the six months endedJune 30, 2022 are$11 million in merger-related expenses compared to$10 million for the six months endedJune 30, 2021 . Also included in the six months endedJune 30, 2021 was the aforementioned$2 million related to the revaluation on our deferred taxes related to a change in theNew York State tax rate.
The key trends in the second quarter of 2022 were:
Record Growth in Deposits
Total deposits atJune 30, 2022 were$41.2 billion , up$3.3 billion or 35% annualized compared toMarch 31, 2022 and up$6.2 billion compared toDecember 31, 2021 , also up 35%. The two biggest contributors to this quarter's growth were our BaaS business and deposits from our borrowers. BaaS-related deposits rose$2.3 billion or 43% on a linked-quarter basis and$5.8 billion on a year-to-date basis to$7.8 billion atJune 30, 2022 . Loan-related deposits totaled$4.9 billion atJune 30, 2022 , up$494 million or 44% annualized on a linked-quarter basis and$921 million or 46% annualized during the first six months of the year. For all of 2021, loan-related deposits increased$475 million and all in, since re-focusing on this source of deposit funding during the first quarter of last year, loan-related deposits have grown$1.4 billion , up 39%. 41 --------------------------------------------------------------------------------
Another
AtJune 30, 2022 , total loans and leases held for investment increased to$48.5 billion , up$1.8 billion or 15% annualized on a linked-quarter basis and$2.8 billion or 12% annualized on a year-to-date basis. Loan growth during the second quarter of 2022 was the Company's second best on record, second only to the$2.2 billion of loan growth during the fourth quarter of last year. Our loan growth during the current second quarter is attributable to continued strong growth in the multi-family portfolio and a significant rebound in specialty finance lending. AtJune 30, 2022 , the multi-family portfolio totaled$36.8 billion , representing$1.0 billion of growth or 11% annualized on a linked-quarter basis and$2.2 billion of growth or 13% annualized on a year-to-date basis. The growth in this segment continues to be driven by market share gains as abates, along with heightened refinancing activity as interest rates increased during the quarter, forcing many borrowers to refinance their properties sooner rather than later. The other driver of this quarter's loan growth was the significant rebound in growth in the specialty finance portfolio, driven primarily by higher utilization rates. AtJune 30, 2022 , the specialty finance segment totaled$4.1 billion , up$806 million or 97% annualized on a linked-quarter basis and$638 million or 36% annualized on a year-to-date basis. As ofJune 30, 2022 , total commitments were$6.6 billion , up 16% compared to$5.7 billion atMarch 31, 2022 . Of theJune 30th amount, 75% or$5 billion are structured as floating-rate obligations, which have, and will continue to benefit the Company in a rising rate environment.
A Record Level of Loan Originations
Loan originations set a new record during the second quarter of 2022. Loan originations for the three months endedJune 30, 2022 totaled$5.3 billion , up$1.7 billion or 49% compared to the three months endedMarch 31, 2022 and$2.2 billion or 72% compared to the three monthsJune 30, 2021 . Second-quarter 2022 originations exceeded the prior quarter's pipeline of$2.5 billion by$2.8 billion , more than double. Approximately 80% of our second quarter originations represented new money to the Bank. In addition, 37% of originations were internal refinances from our portfolio; 39% were external refinances; and 24% represented property transactions.
Recent Events
Declaration of Dividend on Common Shares
OnJuly 26, 2022 , our Board of Directors declared a quarterly cash dividend on the Company's common stock of$0.17 per share. The dividend is payable onAugust 18, 2022 to common shareholders of record as ofAugust 8, 2022 .
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 allowance for credit losses on loans and leases.
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 Credit Losses
The Company'sJanuary 1, 2020 , adoption of ASU No. 2016-13, "Measurement of Credit Losses on Financial Instruments," resulted in a significant change to our methodology for estimating the allowance sinceDecember 31, 2019 . ASU No. 2016-13 replaced the incurred loss methodology with an expected loss methodology that is referred to as the CECL methodology. The measurement of expected credit losses under CECL is applicable to financial assets measured at amortized cost, including loan receivables. It also applies to off-balance sheet exposures not accounted for as insurance and net investments in leases accounted for under ASC Topic 842. AtDecember 31, 2019 , the allowance for credit losses on loans and leases totaled$148 million . OnJanuary 1, 2020 , the Company adopted the CECL methodology under ASU Topic 326 and recognized an increase in the allowance for credit losses on loans and leases of$2 million as a "Day 1" transition adjustment from changes in methodology, with a corresponding decrease in retained earnings. Separately, atDecember 31, 2019 , the Company had an allowance for unfunded commitments of$1 million . Upon adoption, the Company recognized an increase in the allowance for unfunded commitments of$13 million as a "Day 1" transition adjustment with a corresponding decrease in retained earnings. 42 -------------------------------------------------------------------------------- The allowance for credit losses on loans and leases is deducted from the amortized cost basis of a financial asset or a group of financial assets so that the balance sheet reflects the net amount the Company expects to collect. Amortized cost is the unpaid loan balance, net of deferred fees and expenses, and includes negative escrow. Subsequent changes (favorable and unfavorable) in expected credit losses are recognized immediately in net income as a credit loss expense or a reversal of credit loss expense. Management estimates the allowance by projecting and multiplying together the probability-of-default, loss-given-default and exposure-at-default depending on economic parameters for each month of the remaining contractual term. Economic parameters are developed using available information relating to past events, current conditions, and economic forecasts. The Company's economic forecast period is 24 months, and afterwards reverts to a historical average loss rate on a straight-line basis over a 12-month period. Historical credit experience provides the basis for the estimation of expected credit losses, with qualitative adjustments made for differences in current loan-specific risk characteristics such as differences in underwriting standards, portfolio mix, delinquency levels and terms, as well as for changes in environmental conditions, such as changes in legislation, regulation, policies, administrative practices or other relevant factors. Expected credit losses are estimated over the contractual term of the loans, adjusted for forecasted prepayments when appropriate. The contractual term excludes potential extensions or renewals. The methodology used in the estimation of the allowance for loan and lease losses, which is performed at least quarterly, is designed to be dynamic and responsive to changes in portfolio credit quality and forecasted economic conditions. Each quarter the Company reassesses the appropriateness of the economic forecasting period, the reversion period and historical mean at the portfolio segment level, considering any required adjustments for differences in underwriting standards, portfolio mix, and other relevant data shifts over time. The allowance for credit losses on loans and leases is measured on a collective (pool) basis when similar risk characteristics exist. The portfolio segment represents the level at which a systematic methodology is applied to estimate credit losses. Management believes the products within each of the entity's portfolio segments exhibit similar risk characteristics. Smaller pools of homogenous financing receivables with homogeneous risk characteristics were modeled using the methodology selected for the portfolio segment. The macroeconomic data used in the quantitative models are based on a reasonable and supportable forecast period of 24 months. The Company leverages economic projections including property market and prepayment forecasts from established independent third parties to inform its loss drivers in the forecast. Beyond this forecast period, the Company reverts to a historical average loss rate. This reversion to the historical average loss rate is performed on a straight-line basis over 12 months. Loans that do not share risk characteristics are evaluated on an individual basis. These include loans that are in nonaccrual status with balances above management determined materiality thresholds depending on loan class and also loans that are designated as TDR or "reasonably expected TDR" (criticized, classified, or maturing loans that will have a modification processed within the next three months). In addition, all taxi medallion loans are individually evaluated. If a loan is determined to be collateral dependent, or meets the criteria to apply the collateral dependent practical expedient, expected credit losses are determined based on the fair value of the collateral at the reporting date, less costs to sell as appropriate. The Company maintains an allowance for credit losses on off-balance sheet credit exposures. AtJune 30, 2022 andDecember 31, 2021 , the allowance for credit losses on off-balance sheet exposures was$7 million and$12 million , respectively. The Company estimates expected credit losses over the contractual period in which the Company is exposed to credit risk via a contractual obligation to extend credit, unless that obligation is unconditionally cancellable by the Company. The allowance for credit losses on off-balance sheet credit exposures is adjusted as a provision for credit losses expense. The estimate includes consideration of the likelihood that funding will occur and an estimate of expected credit losses on commitments expected to be funded over their estimated life. The Company examined historical credit conversion factor ("CCF") trends to estimate utilization rates, and chose an appropriate mean CCF based on both management judgment and quantitative analysis. Quantitative analysis involved examination of CCFs over a range of fund-up windows (between 12 and 36 months) and comparison of the mean CCF for each fund-up window with management judgment determining whether the highest mean CCF across fund-up windows made business sense. The Company applies the same standards and estimated loss rates to the credit exposures as to the related class of loans. When applying this critical accounting policy, we incorporate several inputs and judgments that may be influenced by changes period to period. These include, but are not limited to changes in the economic environment and forecasts, changes in the credit profile and characteristics of the loan portfolio, and changes in prepayment assumptions which will result in provisions to or recoveries from the balance of the allowance for credit losses. While changes to the economic environment forecasts, and portfolio characteristics will change from period to period, portfolio prepayments are an integral assumption in estimating the allowance for credit losses on our mortgage loan portfolio, are subject to estimation uncertainty and changes in this assumption could have a material impact to our estimation process. Prepayment assumptions are sensitive to interest rates and existing loan terms and determine the weighted average life of the mortgage loan portfolio. Excluding other factors, as the weighted average life of the portfolio increases or decreases, so will the required amount of the allowance for credit losses on mortgage loans. 43 --------------------------------------------------------------------------------
Balance Sheet Summary
AtJune 30, 2022 , total assets were$63.1 billion , up$3.6 billion or 12% annualized compared toDecember 31, 2021 and up$2.1 billion or 14% annualized compared toMarch 31, 2022 . Both the year-over-date and linked-quarter growth were driven by significant loan and deposit growth, an increase in cash balances, offset by a decline in wholesale borrowings, while total securities remained relatively unchanged. Total loans and leases held for investment increased$2.8 billion or 12% annualized compared toDecember 31, 2021 and$1.8 billion or 15% annualized on a linked-quarter basis. This was due to continued strong growth in the multi-family portfolio combined with a significant rebound in the specialty finance portfolio. Total multi-family loans atJune 30, 2022 totaled$36.8 billion , representing growth of$2.2 billion compared toDecember 31, 2021 or 13% on an annualized basis and$1.0 billion of growth compared toMarch 31, 2022 , up 11% annualized. Total specialty finance loans and leases totaled$4.1 billion atJune 30, 2022 , up$638 million or 36% annualized compared toDecember 31, 2021 and up$806 million or 97% compared toMarch 31, 2022 . In addition, total specialty finance commitments increased 16% to$6.6 billion compared to$5.7 billion atMarch 31, 2022 . Cash balances increased$1.1 billion to$3.3 billion compared to the level atDecember 31, 2021 and approximately$400 million or 52% annualized compared toMarch 31, 2022 .
Total securities at
AtJune 30, 2022 , deposits totaled$41.2 billion , up$6.2 billion or 35% annualized compared toDecember 31, 2021 and$3.3 billion during the current second quarter, also up 35% on a linked-quarter basis. Both the linked-quarter and year-to-date increases were driven by our BaaS business and growth in loan-related deposits. BaaS-related deposits totaled$7.8 billion atJune 30, 2022 , up$2.3 billion or 43% on a linked-quarter basis, while loan-related deposits totaled$4.9 billion , up$494 million on a linked-quarter basis and$921 million on a year-to-date basis. BaaS-related deposits fall primarily under three categories: traditional BaaS, consisting primarily of fintech company deposits; government banking as a service, servicing various municipalities and theU.S. Treasury's prepaid debit card program; and mortgage as a service, which caters to mortgage banking and servicing companies and consists of escrow deposits for principal, interest, and tax payments. AtJune 30, 2022 , traditional BaaS deposits totaled$5.5 billion ; government banking as a service totaled$652 million ; and mortgage as a service totaled$1.6 billion of deposits.
Wholesale borrowings at
Total stockholders' equity atJune 30, 2022 was$6.8 billion , down$220 million or 6% annualized compared toDecember 31, 2021 and down$85 million or 5% annualized compared toMarch 31, 2022 . Excluding goodwill and preferred stock, tangible common stockholders' equity totaled$3.9 billion , relatively unchanged compared to$4.0 billion at bothMarch 31, 2022 andDecember 31, 2021 . Book value per common share stood at$13.56 as ofJune 30, 2022 compared to$13.72 atMarch 31, 2022 and$14.07 atDecember 31, 2021 , while tangible book value per share as ofJune 30, 2022 was$8.35 compared to$8.52 atMarch 31, 2022 and$8.85 atDecember 31, 2021 .
Loans and Leases
Loans and Leases Originated for Investment
The majority of the loans we originate 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 over five decades ago in the five boroughs ofNew 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 number of CRE loans, most of which are secured by income-producing properties located inNew York City andLong Island . In addition to multi-family and CRE loans, our specialty finance loans and leases have become an increasingly larger portion of our overall loan portfolio. The remainder of our portfolio includes smaller balances of C&I loans, one-to-four family loans, ADC loans, and other loans held for investment. The majority of C&I loans consist of loans to small- and mid-size businesses. For the quarter endedJune 30, 2022 , total loans and leases originated for investment were$5.3 billion , up$2.2 billion or 72% compared to the quarter endedJune 30, 2021 and exceeded the previous quarter's pipeline by$2.8 billion or 107%. On a year-over-year basis, multi-family originations rose$861 million or 41% to$2.9 billion , while specialty finance originations increased$1.3 billion or 210% to$1.9 billion . CRE originations increased 204% or$143 million to$213 million during the quarter endedJune 30, 2022 . 44 --------------------------------------------------------------------------------
The following table presents information about the loans held for investment we originated for the respective periods:
For the Three Months Ended For the Six Months Ended
June 30, March 31, June 30, June 30, June 30,
(dollars in millions) 2022 2022 2021 2022 2021
Mortgage Loan Originated for
Investment:
Multi-family $ 2,939 $ 2,410 $ 2,078 $ 5,349 $ 3,544
Commercial real estate 213 281 70 494 513
One-to-four family residential 82 62 46 144 68
Acquisition, development, and
construction 32 40 70 72 76
Total mortgage loans originated
for investment 3,266 2,793 2,264 6,059 4,201
Other Loans Originated for
Investment:
Specialty finance 1,877 638 606 2,515 1,147
Other commercial and industrial 116 102 193 218 256
Other 1 2 2 3 3
Total other loans originated for
investment 1,994 742 801 2,736 1,406
Total loans originated for
investment $ 5,260 $ 3,535 $ 3,065 $ 8,795 $ 5,607
Loans and Leases Held for Investment
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 inNew York City that are rent-regulated and feature below-market rents-a market we refer to as our "Primary Lending Niche." 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.
At
AtJune 30, 2022 , 72% of our multi-family loans were secured by rental apartment buildings in theNew York City metro area and 3% were secured by buildings elsewhere inNew York State . The remaining multi-family loans were secured by buildings outside these markets, including in the four other states in which we operate. In addition, 61% or$22.5 billion of the Company's overall multi-family portfolio is secured by properties inNew York State , of which$19.7 billion are subject to rent regulation laws. The weighted average LTV of the rent-regulated segment of the multi-family portfolio was 56.66%, as ofJune 30, 2022 , 372 bps below the overall multi-family weighted average LTV of 60.38%. 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 125% 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, some of 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. 45 --------------------------------------------------------------------------------
Commercial Real Estate Loans
At
The CRE loans originated by the Company are also secured by income-producing properties, such as office buildings, mixed-use buildings (retail storefront on the ground floor and apartment units above the ground floor), retail centers, and multi-tenanted light industrial properties. AtJune 30, 2022 , 83% of our CRE loans were secured by properties in theNew York City metro area, while properties in other parts ofNew York State accounted for 3% of the properties securing our CRE loans and properties in all other states accounted for 15% combined.
Specialty Finance Loans and Leases
At
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 SOFR or LIBOR-replacement rates, 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.
C&I Loans
At
The C&I loans we produce are primarily made to small and mid-size businesses in the five boroughs ofNew York City and onLong 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 theSmall Business Administration . A broad range of C&I loans, both collateralized and unsecured, are made available to businesses for working capital (including inventory and accounts receivable), business expansion, the purchase of machinery and equipment, and other general corporate needs. In determining the term and structure of C&I loans, several factors are considered, including the purpose, the collateral, and the anticipated sources of repayment. C&I loans are typically secured by business assets and personal guarantees of the borrower, and include financial covenants to monitor the borrower's financial stability. The interest rates on 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.
Acquisition, Development, and Construction Loans
ADC loans atJune 30, 2022 totaled$195 million and represented 0.40% of total loans and leases held for investment. Because ADC loans are generally considered to have a higher degree of credit risk, especially during a downturn in the business cycle, borrowers are required to provide a guarantee of repayment and completion. One-to-Four Family Loans AtJune 30, 2022 , one-to-four family loans totaled$129 million or 0.27% of total loans and leases held for investment. These loan balances include certain mixed-use CRE with less than five residential units classified as one-to-four family loans. 46 --------------------------------------------------------------------------------
Other Loans
Other loans totaled
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 Board Credit Committee, and the Board of Directors of the Bank. C&I loans less than or equal to$3 million are approved by the joint authority of lending officers. C&I loans in excess of$3 million and all multi-family, CRE, ADC, and Specialty Finance loans regardless of amount are required to be presented to the Management Credit Committee for approval. Multi-family, CRE, and C&I loans in excess of$5 million and Specialty Finance in excess of$15 million are also required to be presented to the Commercial Credit Committee and theMortgage 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.
The Board of Directors updated certain aspects of the Company's lending
authority as detailed below. These changes were effective as of
Multi-family, CRE, ADC, and specialty finance loans less than or equal to$10 million and C&I loans less than or equal to$5 million are approved by the joint authority of lending officers. C&I loans in excess of$5 million and all multi-family, CRE, ADC, and specialty finance loans in excess of$10 million are required to be presented to the Management Credit Committee for approval. Multi-family, CRE, ADC, and specialty finance loans in excess of$50 million and C&I loans in excess of$10 million are also required to be presented to the Board Credit Committee of the Board, so that the Committee can review the loan's associated risks and approve the credit. The Board Credit Committee has 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.
In addition, all loans of
At
47
--------------------------------------------------------------------------------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
At June 30, 2022
Multi-Family Loans Commercial Real Estate Loans
Percent Percent
(dollars in millions) Amount of Total Amount of Total
New York City :
Manhattan $ 7,655 20.82 % $ 2,854 42.52 %
Brooklyn 6,422 17.46 351 5.23
Bronx 3,725 10.13 143 2.13
Queens 2,922 7.95 554 8.25
Staten Island 127 0.34 52 0.78
Total New York City $ 20,851 56.70 % $ 3,954 58.91 %
New Jersey 5,034 13.69 554 8.25
Long Island 537 1.46 1,033 15.39
Total Metro New York $ 26,422 71.85 % $ 5,541 82.55 %
Other New York State 1,152 3.13 169 2.52
Pennsylvania 3,722 10.12 320 4.77
Florida 1,621 4.41 207 3.08
Ohio 733 2.00 40 0.60
Arizona 417 1.13 33 0.49
All other states 2,705 7.36 402 5.99
Total $ 36,772 100.00 % $ 6,712 100.00 %
At
Asset Quality
Non-Performing Loans and Repossessed Assets
NPAs declined$14 million or 20% to$56 million atJune 30, 2022 compared to the previous quarter. This represented 0.09% of total assets compared to 0.11% of total assets atMarch 31, 2022 . Total NPLs were$50 million , down$13 million or 21% compared toMarch 31, 2022 , representing 0.10% of total loans compared to 0.13% at the previous quarter. Repossessed assets, consisting primarily of repossessed taxi medallions, were$6 million atJune 30, 2022 , down$1 million or 14% fromMarch 31, 2022 . Finally, total loans past due 30 to 89 days declined$4 million or 12% to$30 million compared to the previous quarter. For the three months endedJune 30, 2022 , the Company reported a net recovery of$7 million compared to a net charge-off of$2 million for the three months endedMarch 31, 2022 . For the six months endedJune 30, 2022 , the Company reported net recoveries of$5 million compared to net recoveries of$7 million for the six months endedJune 30, 2021 . 48 --------------------------------------------------------------------------------
The following table presents our non-performing loans by loan type and the
changes in the respective balances from
Change from
December 31, 2021
to
June 30, 2022
June 30, December 31,
(dollars in millions) 2022 2021 Amount Percent
Non-Performing Loans:
Non-accrual mortgage loans:
Multi-family $ 18 $ 10 $ 8 80 %
Commercial real estate 27 16 11 69
One-to-four family - 1 (1 ) (100 )
Acquisition, development, and
construction - - - -
Total non-accrual mortgage loans 45 27 18 67
Non-accrual other loans (1) 5 6 (1 ) (17 )
Total non-performing loans $ 50 $ 33 $ 17 52
(1)
Includes
The following table sets forth the changes in non-performing loans over the six months endedJune 30, 2022 : (dollars in millions) Balance at December 31, 2021$ 33 New non-accrual 36 Charge-offs (1 ) Transferred to repossessed assets -
Loan payoffs, including dispositions and principal
pay-downs (18 ) Restored to performing status - Balance at June 30, 2022$ 50 A loan generally is classified as a non-accrual loan when it is 90 days or more past due or when it is deemed to be impaired because the Company no longer expects to collect all amounts due according to the contractual terms of the loan agreement. When a loan is placed on non-accrual status, management ceases the accrual of interest owed, and previously accrued interest is charged against interest income. A loan is generally returned to accrual status when the loan is current and management has reasonable assurance that the loan will be fully collectible. Interest income on non-accrual loans is recorded when received in cash. AtJune 30, 2022 andDecember 31, 2021 , all of our non-performing loans were non-accrual loans. 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 ; andPennsylvania , 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 generally 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 LTVs on a portfolio-wide basis. 49 -------------------------------------------------------------------------------- Non-performing loans are reviewed regularly by management and discussed on a monthly basis with the Management Credit Committee, the Board Credit Committee, 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 (in accordance with our Environmental Risk Policy) 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 closing, with a member of the Board Credit Committee participating in inspections on multi-family, CRE, and ADC loans to be originated in excess of$50 million . We continue to conduct inspections as per the aforementioned policy, however, due to the COVID-19 pandemic, currently full access to some properties and buildings may be limited. 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 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. 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, inNew 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 new rent regulation 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. 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. 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 125% 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 atJune 30, 2022 . Exceptions to these LTV limitations are minimal and are reviewed on a case-by-case basis. 50 -------------------------------------------------------------------------------- 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. 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. 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 fromDecember 31, 2021 toJune 30, 2022 : Change from December 31, 2021 to June 30, 2022 June 30, December 31, (dollars in millions) 2022 2021 Amount Percent Loans 30-89 Days Past Due: Multi-family $ 20 $ 57$ (37 ) -65 % Commercial real estate 1 2 (1 ) -50 One-to-four family 7 8 (1 ) -13 Acquisition, development, and construction - - - NM Other loans (1) 2 - 2 NM Total loans 30-89 days past due $ 30 $ 67$ (37 ) -55 % (1)
Does not include any past due taxi medallion-related loans at
51
--------------------------------------------------------------------------------
During the second quarter of 2022, total loans 30-89 days past due decreased to
$30 million compared to $67 million at December 31, 2021 , primarily due to two
multi-family loans that became current during the six months ending June 30,
2022 .
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.
Based upon all relevant and available information as of the end of the current second quarter, management believes that the allowance for losses on loans was appropriate at that date.
At
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. AtJune 30, 2022 , non-accrual TDRs included taxi medallion-related loans with a combined balance of$4 million .
At
Based on the number of loans performing in accordance with their revised terms, our success rates for restructured CRE and multi-family loans, was 100%. The success rates for restructured one-to-four family and other loans were 100% and 32%, respectively, atJune 30, 2022 .
Analysis of Troubled Debt Restructurings
The following table sets forth the changes in our TDRs over the six months endedJune 30, 2022 : Non- (dollars in millions) Accruing Accrual Total Balance at December 31, 2021 $ 16$ 13 $ 29 New TDRs - 19 19 Charge-offs - - - Transferred from performing - - -
Loan payoffs, including dispositions and
principal pay-downs - (3 ) (3 ) Balance at June 30, 2022 $ 16$ 29 $ 45 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 six months endedJune 30, 2022 , 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. 52 -------------------------------------------------------------------------------- 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 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. The following table presents information on the Company's net charge-offs as compared to average loans outstanding for the six months endedJune 30, 2022 : For the Six Months Ended, June 30, June 30, (dollars in millions) 2022 2021 Multi-family Net charge-offs (recoveries) during the period $ - $ 2 Average amount outstanding$ 35,332
0.00 % 0.01 %
Commercial real estate Net charge-offs (recoveries) during the period $ - $ (2 ) Average amount outstanding $ 6,669
0.00 % -0.03 %
One-to-Four Family Net charge-offs (recoveries) during the period $ - $ - Average amount outstanding $ 146
$ 210 Net charge-offs (recoveries) as a percentage of average loans
0.00 % 0.00 %
Acquisition, Development and Construction Net charge-offs (recoveries) during the period $ - $ - Average amount outstanding $ 228
$ 110 Net charge-offs (recoveries) as a percentage of average loans
0.00 % 0.00 %
Other Loans Net charge-offs (recoveries) during the period $ (5 ) $ (7 ) Average amount outstanding $ 4,104
-0.12 % -0.20 %
Total loans Net charge-offs (recoveries) during the period $ (5 ) $ (7 ) Average amount outstanding$ 46,479
-0.01 % -0.02 %
Geographical Analysis of Non-Performing Loans
The following table presents a geographical analysis of our non-performing loans atJune 30, 2022 : (dollars in millions) New York$ 46 New Jersey 3 All other states 1 Total non-performing loans$ 50 Securities AtJune 30, 2022 , total securities declined$118 million to$5.7 billion , down 4% annualized compared toDecember 31, 2021 and were relatively unchanged compared toMarch 31, 2022 . AtJune 30, 2022 , total securities represented 9.0% of total assets compared to 9.2% and 9.7%, respectively, atMarch 31, 2022 andDecember 31, 2021 . 53 --------------------------------------------------------------------------------
The following table summarizes the weighted average yield of debt securities for
the maturities indicated at
U.S. State,
Mortgage- Government County, Other
Related and GSE and Debt
Securities Obligations Municipal Securities (2)
Available-for-Sale Debt Securities: (1) Due within one year 2.75 % 2.12 % - % 1.01 % Due from one to five years 3.28 3.22 - 2.92 Due from five to ten years 2.73 1.59 3.53 3.25 Due after ten years 1.96 1.62 - 1.76 Total debt securities available for sale 2.11 1.88 3.53 2.67 (1) The weighted average yields are calculated by multiplying each carrying value by its yield and dividing the sum of these results by the total carrying values and are not presented on a tax-equivalent basis.
(2)
Includes corporate bonds, capital trust notes, foreign notes, and asset-backed securities.
Federal Home LoanBank 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. AtJune 30, 2022 andDecember 31, 2021 , the Bank held FHLB-NY stock in the amount of$635 million and$734 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
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 increased$8 million to$1.2 billion atJune 30, 2022 fromDecember 31, 2021 .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 bothJune 30, 2022 andDecember 31, 2021 .
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 Bank; 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$6.0 billion in the six months endedJune 30, 2022 , up$1.6 billion from the$4.4 billion recorded in the year-earlier six months. Cash flows from the repayment and sales of securities totaled$397 million and$931 million , respectively, in the corresponding periods, while purchases of securities totaled$788 million and$1.3 billion , respectively. 54 --------------------------------------------------------------------------------
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. AtJune 30, 2022 , total deposits were$41.2 billion , up$3.3 billion compared to total deposits atMarch 31, 2022 , and up$6.2 billion sinceDecember 31, 2021 . AtJune 30, 2022 , total deposits represented 65.4% of total assets compared to 62.2% atMarch 31, 2022 and 58.9% atDecember 31, 2021 . Additionally, atJune 30, 2022 , CDs represented 19.6% of total deposits versus 20.8% atMarch 31, 2022 and 24.0% atDecember 31, 2021 . Included in theJune 30, 2022 balance of deposits were business institutional deposits of$1.9 billion and municipal deposits of$597 million , as compared to$1.4 billion and$751 million , respectively, atDecember 31, 2021 . Also, included in theJune 30, 2022 balance of deposits was$7.8 billion of BaaS-related deposits up$5.8 billion fromDecember 31, 2021 . Brokered deposits remained stable at$4.5 billion , including brokered interest-bearing checking accounts of$467 million atJune 30, 2022 and$1.5 billion atDecember 31, 2021 , brokered money market accounts of$2.9 billion atJune 30, 2022 and$2.9 billion atDecember 31, 2021 , and brokered CDs of$1.1 billion atJune 30, 2022 and$1.2 billion atDecember 31, 2021 . 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. The following table indicates the amount of time deposits, by account, that are in excess of theFDIC insurance limit (currently$250,000 ) by time remaining until maturity as ofJune 30, 2022 :June 30 , (dollars in millions) 2022
Portion of
$ 693 Over 3 months through 6 months 388 Over 6 months through 12 months 509 Over 12 months 1,008 Total time deposits otherwise uninsured$ 2,598
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 and subordinated notes. As ofJune 30, 2022 , borrowed funds declined$2.3 billion or 27% annualized to$14.3 billion compared toDecember 31, 2021 , and represented 23% of total assets at that date. The decrease was mainly due to a decline in wholesale borrowings, consisting primarily of FHLB-NY advances, which declined to$13.7 billion compared to$15.9 billion at year-end 2021. Also included in wholesale borrowings are repurchase agreements of$800 million , unchanged from the balance atDecember 31, 2021 . Subordinated Notes OnNovember 6, 2018 , the Company issued$300 million aggregate principal amount of its 5.90% Fixed-to-Floating Rate Subordinated Notes due 2028. The Company has used$278 million of the net proceeds from the offering to repurchase shares of its common stock pursuant to its previously announced share repurchase program, and may use the balance of the offering towards the repurchase of its common stock or for other general corporate purposes. The Notes were offered to the public at 100% of their face amount. AtJune 30, 2022 , the balance of subordinated notes was$296 million , which excludes certain costs related to their issuance.
Junior Subordinated Debentures
Junior subordinated debentures totaled
55
--------------------------------------------------------------------------------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 one of the greatest challenges 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 manage our interest rate risk by taking the following actions: continue to emphasize the origination and retention of intermediate-term assets, primarily in the form of multi-family and CRE loans; continue to originate certain floating rate C&I loans; depending on funding needs, replace maturing wholesale borrowings with longer term borrowings; and as needed, execute interest rate swaps. LIBOR Transition Process The discontinuation of LIBOR has been developing since 2017 when theUnited Kingdom's Financial Conduct Authority ("FCA") first called for LIBOR to be phased out by 2021. TheICE Benchmark Administration , the publisher of LIBOR discontinued publication of the one-week and two-month US Dollar LIBOR onDecember 31, 2021 , and will discontinue publication of overnight, one-month, three-month, six-month, and twelve-monthU.S Dollar LIBORs onJune 30, 2023 , although its use for new business was restricted afterDecember 31, 2021 , with limited exceptions. 56 -------------------------------------------------------------------------------- InOctober 2020 , theInternational Swaps and Derivatives Association announced fallback language for derivative contracts incorporating SOFR, as well as a process by which counterparties to such contracts could elect to apply the fallback language to existing derivatives on or afterJanuary 25, 2021 . SOFR was identified by the Alternative Reference Rates Committee (ARRC), a group of private-market participants convened to help ensure a successful transition from LIBOR inthe United States , as the recommended replacement to US Dollar LIBOR inthe United States . The adoption of the fallback protocols does not change the index for subject agreements from LIBOR to SOFR, but simply creates the legal framework for the appropriate mechanisms to occur in the future. The Bank established a sub-committee of ALCO to address issues related to the phase out and transition away from LIBOR. The sub-committee is led by our Chief Financial Officer and consists of personnel from various departments throughout the Bank. The Company has identified certain LIBOR-based contracts that extend beyondJune 30, 2023 , which may include loans and leases, securities, wholesale borrowings, derivative financial instruments, and long-term debt. The sub-committee has reviewed the associated contracts and legal agreements for conformance to the ARRC aligned fallback language and noted that certain contracts will require some form of standardization in accordance with LIBOR transition recommended fallback provisions. The FRB, theFDIC , and the OCC issued supervisory guidance encouraging banks to cease entering into new contracts that use USD LIBOR as a reference rate as soon as practicable and in any event byDecember 31, 2021 . In accordance with guidance, as of afterDecember 31, 2021 the Bank does not offer LIBOR indexed products.
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. AtJune 30, 2022 , our one-year gap was a negative 26.14%, compared to a negative 7.43% atDecember 31, 2021 . The change in our one-year gap fromDecember 31, 2021 , primarily reflects an increase in borrowings that will mature or are projected to get put back to the Company and an increase in new deposit balances that are indexed to short term rates. The table on the following page sets forth the amounts of interest-earning assets and interest-bearing liabilities outstanding atJune 30, 2022 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 atJune 30, 2022 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 6.99% per annum; for multi-family and CRE loans, prepayment rates are forecasted at weighted average CPRs of 8.69% and 7.25% 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 67% for the first five years and 33% for years six through ten. Interest-bearing checking accounts were assumed to decay at a rate of 85% for the first five years and 15% for years six through ten. The decay assumptions reflect the prolonged low 57 --------------------------------------------------------------------------------
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 79% for the first five years and 21% for years six through ten.
At June 30, 2022
More Than More Than
Three Four to One Year Three More Than
(dollars in Months Twelve to Three Years to Five Years More Than
millions) or Less Months Years Five Years to 10 Years 10 Years TotalINTEREST-EARNING ASSETS: Mortgage and other loans (1)$ 7,153 $ 5,636 $ 14,144 $ 13,698 $ 7,856 $ -$ 48,487 Mortgage-related securities (2)(3) 191 171 520 329 437 819 2,467 Other securities (2) 1,754 445 361 40 403 829 3,832 Interest-earning cash, cash equivalents and due from banks 3,130 - - - - - 3,130 Total interest-earning assets 12,228 6,252 15,025 14,067 8,696 1,648 57,916 INTEREST-BEARING LIABILITIES: Interest-bearing checking and money market accounts 11,890 506 2,865 648 3,280 - 19,189 Savings accounts 3,067 2,599 480 295 3,139 - 9,580 Certificates of deposit 3,070 3,078 1,882 60 - - 8,090 Borrowed funds 7,989 2,775 2,900 500 - 143 14,307 Total interest-bearing liabilities 26,016 8,958 8,127 1,503 6,419 143 51,166 Interest rate sensitivity gap per period (4)$ (13,788 ) $ (2,706 ) $ 6,898 $ 12,564 $ 2,277$ 1,505 $ 6,750 Cumulative interest rate sensitivity gap$ (13,788 ) $ (16,494 ) $ (9,596 ) $ 2,968 $ 5,245$ 6,750 Cumulative interest rate sensitivity gap as a percentage of total assets (21.85 ) % (26.14 ) % (15.21 ) % 4.70 % 8.31 % 10.70 % Cumulative net interest-earning assets as a percentage of net interest-bearing liabilities 47.00 % 52.84 % 77.74 % 106.65 % 110.28 % 113.19 % (1) For the purpose of the gap analysis, loans held for sale, 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 quarterly 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 ofJune 30, 2022 , 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 2.90% 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 58 --------------------------------------------------------------------------------
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 Economic Value of Equity ("EVE") over a
range of interest rate scenarios. EVE is defined as the net present value of
expected cash flows from assets, liabilities, and off-balance sheet contracts.
The EVE ratio, under any interest rate scenario, is defined as the EVE 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
Estimated
Change in Percentage
Interest Change in
Rates (in basis Economic
points) (1) Value of Equity
-100 over one year 5.78%
+100 over one year -8.17%
+ 200 over one year -16.66%
(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 EVE presented in the preceding table are within the limits approved by the Boards of Directors of the Company and the Bank.
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 EVE 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 EVE 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 consider the benefit of any strategic actions we may take to further reduce our exposure to interest rate risk. Accordingly, while the EVE 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
Change in Interest Rates Estimated Percentage Change in
(in basis points) (1) (2) Future Net Interest Income
-100 over one year 4.41%
+100 over one year -3.72%
+200 over one year -8.77%
(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.
59
--------------------------------------------------------------------------------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 EVE 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. AtJune 30, 2022 , our analysis indicated that an immediate inversion of the yield curve would be expected to result in a (4.32)% decrease in net interest income; conversely, an immediate steepening of the yield curve would be expected to result in a 13.38% increase in net interest income. It should be noted that the yield curve changes in these scenarios were updated, given the changing market rate environment, which resulted in an increase in the income sensitivity in the steepening scenario.
Liquidity, Contractual Obligations and Off-Balance Sheet Commitments and Capital Position
Liquidity We manage our liquidity to ensure that our cash flows are sufficient to support our operations, and to compensate for any temporary mismatches between sources and uses of funds caused by variable loan and deposit demand. We monitor our liquidity daily to ensure that sufficient funds are available to meet our financial obligations. Our most liquid assets are cash and cash equivalents, which totaled$3.3 billion and$2.2 billion , respectively, atJune 30, 2022 andDecember 31, 2021 . As in the past, our loan and securities portfolios provided meaningful liquidity in 2022, with cash flows from the repayment and sale of loans totaling$6.0 billion and cash flows from the repayment and sale of securities totaling$397 million . Additional liquidity stems from deposits and from our use of wholesale funding sources, including brokered deposits and wholesale borrowings. In addition, we have access to the Bank's approved lines of credit with various counterparties, including the FHLB-NY. The availability of these wholesale funding sources is generally based on the amount of mortgage loan collateral available under a blanket lien we have pledged to the respective institutions and, to a lesser extent, the amount of available securities that may be pledged to collateralize our borrowings. AtJune 30, 2022 , our available borrowing capacity with the FHLB-NY was$12.2 billion . In addition, the Bank had available-for-sale securities of$5.7 billion , of which,$4.6 billion is unpledged. Furthermore, the Bank has agreements with the FRB-NY that enable it to access the discount window as a further means of enhancing their liquidity. In connection with these agreements, the Bank has pledged certain loans and securities to collateralize any funds they may borrow. AtJune 30, 2022 , the maximum amount the Bank could borrow from the FRB-NY was$1.1 billion . There were no borrowings against these lines of credit atJune 30, 2022 . 60 -------------------------------------------------------------------------------- Our primary investing activity is loan production, and the volume of loans we originated for investment totaled$8.8 billion in 2022. During this time, the net cash used in investing activities totaled$3.1 billion ; the net cash provided by our operating activities totaled$399 million . Our financing activities provided net cash of$3.7 billion . CDs due to mature or reprice in one year or less fromJune 30, 2022 totaled$6.1 billion , representing 76% of total CDs at that date. Our ability to attract and retain retail deposits, including CDs, depends on numerous factors, including, among others, the convenience of our branches and our other banking channels; our customers' satisfaction with the service they receive; the rates of interest we offer; the types of products we feature; and the attractiveness of their terms.
Our decision to compete for deposits also depends on numerous factors, including, among others, our access to deposits through acquisitions, the availability of lower-cost funding sources, the impact of competition on pricing, and the need to fund our loan demand.
The Parent Company is a separate legal entity from 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 any dividends declared to our stockholders. As aDelaware corporation, the Parent Company is able to pay dividends either from surplus or, in case there is no surplus, from net profits for the fiscal year in which the dividend is declared and/or the preceding fiscal year.The Parent Company's ability to pay dividends may also depend, in part, upon dividends it receives from the Bank. The ability of the Bank to pay dividends and other capital distributions to the Parent Company is generally limited byNew York State Banking Law and regulations, and by certain regulations of theFDIC . In addition, the Superintendent of theNew York State Department of Financial Services (the "Superintendent"), theFDIC , and the FRB, for reasons of safety and soundness, may prohibit the payment of dividends that are otherwise permissible by regulations. UnderNew York State Banking Law, aNew 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 2022, the Bank paid dividends totaling$190 million to the Parent Company, leaving$573 million that it could dividend to the Parent Company without regulatory approval at year-end. Additional sources of liquidity available to the Parent Company atJune 30, 2022 included$133 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.
Contractual Obligations and Off-Balance Sheet Commitments
In the normal course of business, we enter into a variety of contractual obligations in order to manage our assets and liabilities, fund loan growth, operate our branch network, and address our capital needs.
For example, we offer CDs with contractual terms to our customers, and borrow funds under contract from the FHLB-NY and various brokerage firms. These contractual obligations are reflected in the Consolidated Statements of Condition under "Deposits" and "Borrowed funds," respectively. AtJune 30, 2022 , we had CDs of$8.1 billion and long-term debt (defined as borrowed funds with an original maturity one year or more) of$12.6 billion . AtJune 30, 2022 , we also had commitments to extend credit in the form of mortgage and other loan originations, as well as commercial, performance stand-by, and financial stand-by letters of credit, totaling$4.9 billion . These off-balance sheet commitments consist of agreements to extend credit, as long as there is no violation of any condition established in the contract under which the loan is made. Commitments generally have fixed expiration dates or other termination clauses and may require the payment of a fee. The letters of credit we issue consist of performance stand-by, financial stand-by, and commercial letters of credit. Financial stand-by letters of credit primarily are issued for the benefit of other financial institutions, municipalities, or landlords on behalf of certain of our current borrowers, and obligate us to guarantee payment of a specified financial obligation. Performance stand-by letters of credit are primarily issued for the benefit of local municipalities on behalf of certain of our borrowers. Performance letters of credit obligate us to make payments in the event that a specified third party fails to perform under non-financial contractual obligations. Commercial letters of credit act as a means of ensuring payment to a seller upon shipment of goods to a buyer. Although commercial letters of credit are used to effect payment for domestic transactions, the majority are used to settle payments in international trade. Typically, such letters of credit require the presentation of documents that describe the commercial transaction, and provide evidence of shipment and the transfer of title. The fees we collect in connection with the issuance of letters of credit are included in "Fee income" in the Consolidated Statements of Income and Comprehensive Income. 61 -------------------------------------------------------------------------------- Based upon our current liquidity position, we expect that our funding will be sufficient to fulfill these cash obligations and commitments when they are due both in the short term and long term. For the three months endedJune 30, 2022 , we did not engage in any off-balance sheet transactions reasonably likely to have a material effect on our financial condition, results of operations or cash flows.
At
Capital Position
OnMarch 17, 2017 , we issued 515,000 shares of preferred stock. The offering generated capital of$503 million , net of underwriting and other issuance costs, for general corporate purposes, with the bulk of the proceeds being distributed to the Bank. OnOctober 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. As ofJune 30, 2022 , the Company has repurchased a total of 29.7 million shares at an average price of$9.61 or an aggregate purchase price of$285 million , leaving$10 million remaining under the current authorization. Stockholders' equity, common stockholders' equity, and tangible common stockholders' equity includes AOCL, which decreased$368 million from the balance at the end of last year and$379 million from the year-ago quarter to$453 million atJune 30, 2022 . The year-to-date decrease was primarily the result of a$391 million change in the net unrealized gain (loss) on available-for-sale securities, net of tax, and a$23 million change in the net unrealized loss on cash flow hedges, net of tax, to$14 million .
The Bank is subject to regulation, examination, and supervision by the NYSDFS and theFDIC (the "Regulators"). The Bank is also governed by numerous federal and state laws and regulations, including the FDIC Improvement Act of 1991, which established five categories of capital adequacy ranging from "well capitalized" to "critically undercapitalized." Such classifications are used by theFDIC to determine various matters, including prompt corrective action and each institution'sFDIC deposit insurance premium assessments. Capital amounts and classifications are also subject to the Regulators' qualitative judgments about the components of capital and risk weightings, among other factors. The quantitative measures established to ensure capital adequacy require that banks maintain minimum amounts and ratios of leverage capital to average assets and of common equity tier 1 capital, tier 1 capital, and total capital to risk-weighted assets (as such measures are defined in the regulations). AtJune 30, 2022 , 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
Common Equity
At June 30, 2022 Tier 1 Tier 1 Total Leverage Capital
(dollars in
millions) Amount Ratio Amount Ratio Amount Ratio Amount Ratio
Total capital $ 4,368 9.16 % $ 4,871 10.22 % $ 5,719 12.00 % $ 4,871 8.13 %
Minimum for capital
adequacy
purposes 2,145 4.50 2,860 6.00 3,813 8.00 2,396 4.00
Excess $ 2,223 4.66 % $ 2,011 4.22 % $ 1,906 4.00 % $ 2,475 4.13 %
62--------------------------------------------------------------------------------
Regulatory Capital Analysis (
Risk-Based Capital
Common Equity
At June 30, 2022 Tier 1 Tier 1 Total Leverage Capital
(dollars in
millions) Amount Ratio Amount Ratio Amount Ratio Amount Ratio
Total capital $ 5,365 11.26 % $ 5,365 11.26 % $ 5,569 11.69 % $ 5,365 8.96 %
Minimum for capital
adequacy
purposes 2,143 4.50 2,858 6.00 3,810 8.00 2,395 4.00
Excess $ 3,222 6.76 % $ 2,507 5.26 % $ 1,759 3.69 % $ 2,970 4.96 %
At
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
For the three months endedJune 30, 2022 , net income totaled$171 million , up 13% compared to the$152 million the Company reported for the three months endedJune 30, 2021 . Net income available to common stockholders for the three months endedJune 30, 2022 totaled$163 million , up 13% compared to the$144 million the Company reported for the three months endedJune 30, 2021 . On a per share basis, diluted EPS were$0.34 for the three months endedJune 30, 2022 , up 13% compared to the$0.30 the Company reported for the three months endedJune 30, 2021 . Both net income and net income available to common stockholders for the three months endedJune 30, 2022 include merger-related expenses of$3 million , net of income tax, while the three months endedJune 30, 2021 includes merger-related expenses of$10 million , net of income tax and a$2 million revaluation of the Company's deferred taxes due to a change in theNew York State tax rate.
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 theFOMC , 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. Year-Over-Year Comparison Net interest income for the three months endedJune 30, 2022 totaled$359 million , up$28 million or 8% on a year-over-year basis. This was driven by a$42 million or 10% increase in interest income offset by a$14 million or 14% increase in interest expense. 63 --------------------------------------------------------------------------------
Details of the change in net interest income are as follows:
•
Interest income on loans and leases rose$38 million or 10% to$424 million on a year-over-year basis and interest income on interest-earning cash and cash equivalents rose$7 million to$9 million , while interest income on securities declined$3 million to$40 million .
•
The year-over-year improvement in interest income was due to a$4.0 billion or 8% increase in average assets to$57.0 billion , mainly due to a significant increase in average loan balances, along with a seven basis-point improvement in the average yield to 3.32%.
•
Average loans increased
•
Average securities balances of
•
Interest expense on average interest-bearing checking and MMAs increased$17 million to$24 million as average balances rose$4.8 billion and the average cost increased 31 basis points to 0.55% on a year-over-year basis.
•
Interest expense on borrowed funds declined$4 million or 6% to$68 million , year-over-year while average borrowings declined$715 million or 5% to$15.0 billion .
•
Average non-interest-bearing deposit balances declined
Net Interest Margin During the three months endedJune 30, 2022 , the NIM was 2.52%, up two basis points on a year-over-year basis and up nine basis points on a linked-quarter basis. Prepayment income contributed 14 basis points to the current quarter's NIM, up two basis points compared to the second quarter of last year and up six basis points compared to the first quarter of this year. Excluding the impact from prepayment income, the NIM on a non-GAAP basis was 2.38%, up three basis points compared to the second quarter of this year. The following table summarizes the contribution of loan and securities prepayment income on the Company's interest income and NIM for the respective periods: June 30, 2022 For the Three Months Ended Compared to June 30, March 31, June 30, March 31, June 30, (dollars in millions) 2022 2022 2021 2022 2021 Total Interest Income$ 473 $ 429 $ 431 10 % 10 % Prepayment Income: Loans$ 19 $ 11 $ 22 73 % (14 ) % Securities 1 - 5 NM % (80 ) % Total prepayment income$ 20 $ 11 $ 27 82 % (26 ) % GAAP Net Interest Margin 2.52 % 2.43 % 2.50 % 9 bp 2 bp Less: Prepayment income from loans -13 bp -8 bp -17 bp (5 ) bp 4 bp Prepayment income from securities -1 - -3
(1 ) bp 2 bp
Add excess liquidity - - 8 - 8
Total prepayment income
contribution to net
interest margin -14 bp -8 bp -12 bp (6 ) bp (2 ) bp
Adjusted Net Interest
Margin (non-GAAP) 2.38 % 2.35 % 2.38 % 3 bp 0 bp
64
--------------------------------------------------------------------------------
The following table sets forth certain information regarding our average balance
sheet for the three-month periods, 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
June 30, 2022 March 31, 2022 June 30, 2021
Average Average Average
Average Yield/ Average Yield/ Average Yield/
(dollars in millions) Balance Interest Cost Balance Interest Cost Balance Interest Cost
ASSETS:
Interest-earning assets:
Mortgage and other loans and
leases, net (1) $ 47,144 $ 424 3.61 % $ 45,807 $ 393 3.43 % $ 42,817 $ 386 3.60 %
Securities (2)(3) 6,676 40 2.40 6,538 34 2.12 6,790 43 2.55
Reverse repurchase
agreements 348 2 1.93 292 1 1.12 469 1 1.32
Interest-earning cash, cash
equivalents, and due from
banks 2,861 7 0.93 1,924 1 0.21 2,946 1 0.11
Total interest-earning assets 57,029 473 3.32 54,561 429 3.15 53,022 431 3.25
Non-interest-earning assets 4,959 5,333 5,092
Total assets $ 61,988 $ 59,894 $ 58,114
LIABILITIES AND STOCKHOLDERS'
EQUITY:
Interest-bearing deposits:
Interest-bearing checking and
money market accounts $ 17,456 $ 24 0.55 % $ 13,784 $ 8 0.24 % $ 12,699 $ 7 0.24 %
Savings accounts 9,228 10 0.41 9,208 8 0.35 7,487 7 0.36
Certificates of deposit 8,102 12 0.62 8,070 11 0.53 9,154 14 0.58
Total interest-bearing
deposits 34,786 46 0.53 31,062 27 0.35 29,340 28 0.38
Short term borrowed funds 1,959 5 0.96 3,212 3 0.39 2,250 2 0.35
Other borrowed funds 13,050 63 1.94 13,351 67 2.04 13,474 70 2.07
Total Borrowed funds 15,009 68 1.81 16,563 70 1.72 15,724 72 1.82
Total interest-bearing
liabilities 49,795 114 0.92 47,625 97 0.82 45,064 100 0.88
Non-interest-bearing deposits 4,568 4,397 5,488
Other liabilities 724 826 691
Total liabilities 55,087 52,848 51,243
Stockholders' equity 6,901 7,046 6,871
Total liabilities and
stockholders' equity $ 61,988 $ 59,894 $ 58,114
Net interest income/interest
rate spread $ 359 2.40 % $ 332 2.33 % $ 331 2.37 %
Net interest margin 2.52 % 2.43 % 2.50 %
Ratio of interest-earning
assets to interest-bearing
liabilities 1.15x 1.15x 1.18x
(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 Credit Losses
For the three months endedJune 30, 2022 , the Company reported a provision for credit losses of$9 million compared to a recovery of credit losses of$4 million for the three months endedJune 30, 2021 . The current quarter's provision largely reflects the strong loan growth the Company experienced during the quarter. 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. 65 --------------------------------------------------------------------------------
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. For the three months endedJune 30, 2022 , non-interest income totaled$18 million , up 13% on a year-over-year basis. The current second quarter includes a$1.7 million gain on the sale of the Company's former headquarters building inWestbury, N.Y. The following table summarizes our non-interest income for the respective periods: For the Three Months Ended June 30, March 31, June 30, (dollars in millions) 2022 2022 2021 Fee income$ 6 $ 6 $ 6 BOLI income 7 7 8 Net gain (loss) on securities - (1 )
-
Other income: Third-party investment product sales 1 1 - Other 4 1 2 Total other income 5 2 2 Total non-interest income$ 18 $ 14 $ 16 Non-Interest Expense For the three months endedJune 30, 2022 , non-interest expenses totaled$138 million , down$1 million or 1% compared to the second quarter of last year. The current second quarter amount includes$4 million in merger-related expenses compared to$10 million in the year-ago quarter. The second quarter efficiency ratio was 35.57% compared to 37.11% for the second quarter of last year.
Income Tax Expense
For the three months endedJune 30, 2022 , income tax expense totaled$59 million , down$1 million or 2% compared to the three months endedJune 30, 2021 . The effective tax rate for the current second quarter was 25.60% compared to 28.38% for the second quarter of last year. The year-ago second quarter income tax expense includes$2 million due to the revaluation of deferred taxes related to a change in theNew York State tax rate.
Earnings Summary for the Six Months Ended
For the six months endedJune 30, 2022 , net income totaled$326 million up$29 million or 10% compared to$297 million for the six months endedJune 30, 2021 . Net income available to common stockholders for the six months endedJune 30, 2022 was$310 million , up$29 million or 10% compared to$281 million for the six months endedJune 30, 2021 . On a per share basis, diluted EPS for the six months endedJune 30, 2022 totaled$0.66 , up 10% compared to$0.60 for the six months endedJune 30, 2021 . For the six months endedJune 30, 2022 , both net income and net income available to common stockholders included merger-related expenses of$8 million , net of income tax, compared to$10 million , net of tax, for the six months endedJune 30, 2021 . TheJune 30, 2022 six-month period also included$2 million related to the revaluation of the Company's deferred taxes due to the change in theNew York State tax rate.
Net Interest Income
Net interest income for the six months endedJune 30, 2022 , totaled$691 million compared to$649 million for the six months endedJune 30, 2021 , up$42 million or 6% on a year-over-year basis. The year-over-year improvement was driven by a$48 million or 6% increase in interest income, offset modestly by a$6 million or 3% increase in interest expense.
Details of the change in net interest income are as follows:
•
Interest income on average loan balances increased$48 million or 6% to$817 million , while interest income on securities decreased$7 million or 9% to$75 million .
•
The increase in interest income on average loans was driven by a
66
--------------------------------------------------------------------------------•
Average securities balances of
•
Interest expense on average interest-bearing deposits rose$12 million or 20% to$73 million ; the average cost of interest-bearing deposits increased only modestly to 0.45% compared to 0.42%, however, average interest-bearing deposits increased$3.6 billion or 12% on a year-over-year basis.
•
Interest on average borrowings declined
•
Average non-interest-bearing deposits rose modestly to
Net Interest Margin For the six months endedJune 30, 2022 , the NIM decreased one basis point to 2.48% compared to the six months endedJune 30, 2021 . Prepayment income contributed 12 basis points to this period's NIM compared to 14 basis points in the prior year's six-month period. Excluding the impact from prepayment income, the NIM, on a non-GAAP basis was 2.36%, up one basis point compared to the six months endedJune 30, 2021 . For the Six Months Ended June 30, June 30, (dollars in millions) 2022 2021 % Change Total Interest Income$ 902 $ 854 6 % Prepayment Income: Loans $ 30 $ 41 (27 ) % Securities 1 6 (83 ) % Total prepayment income $ 31 $ 47 (34 ) % GAAP Net Interest Margin 2.48 % 2.49 % 1 bp Less: Prepayment income from loans -11 bp -16 bp 5 bp Prepayment income from securities -1 -2 1 bp Add excess liquidity 0 4 (4 ) Total prepayment income contribution to net interest margin -12 bp -14 bp 2 bp Adjusted Net Interest Margin (non-GAAP) 2.36 % 2.35 % 1 bp The following table sets forth certain information regarding our average balance sheet for the six-month periods, 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. 67 -------------------------------------------------------------------------------- Net Interest Income Analysis For the Six Months Ended June 30, 2022 June 30, 2021 Average Average Average Yield/ Average Yield/ (dollars in millions) Balance Interest Cost Balance Interest Cost ASSETS: Interest-earning assets: Mortgage and other loans and leases, net (1)$ 46,479 $ 817 3.52 %$ 42,777 $ 769 3.60 % Securities (2)(3) 6,607 75 2.26 6,654 82 2.46 Reverse repurchase agreements 320 2 1.56 367 1 0.84 Interest-earning cash, cash equivalents, and due from banks 2,395 8 0.64 2,263 2 0.18 Total interest-earning assets 55,801 902 3.24 52,061 854 3.28 Non-interest-earning assets 5,145 5,154 Total assets$ 60,946 $ 57,215 LIABILITIES AND STOCKHOLDERS' EQUITY: Interest-bearing deposits: Interest-bearing checking and money market accounts$ 15,629 $ 32 0.42 %$ 12,663 $ 16 0.26 % Savings accounts 9,218 18 0.38 7,102 13 0.37 Certificates of deposit 8,086 23 0.58 9,566 32 0.67 Total interest-bearing deposits 32,933 73 0.45 29,331 61 0.42 Short term borrowed funds 2,132 7 0.66 2,250 4 0.35 Other borrowed funds 13,650 131 1.93 13,609 140 2.07 Total Borrowed funds 15,782 138 1.76 15,859 144 1.82 Total interest-bearing liabilities 48,715 211 0.87 45,190 205 0.91 Non-interest-bearing deposits 4,483 4,372 Other liabilities 775 781 Total liabilities 53,973 50,343 Stockholders' equity 6,973 6,872 Total liabilities and stockholders' equity$ 60,946 $ 57,215 Net interest income/interest rate spread$ 691 2.37 %$ 649 2.38 % Net interest margin 2.48 % 2.49 % Ratio of interest-earning assets to interest-bearing liabilities 1.15x 1.15x Provision for Credit Losses For the six months endedJune 30, 2022 , the Company reported a provision for credit losses of$7 million compared to zero for the six months endedJune 30, 2021 . Non-Interest Income For the six months endedJune 30, 2022 , non-interest income totaled$32 million , up$2 million or 7% compared to$30 million for the six months endedJune 30, 2021 . Included in the current six-month period is a$1 million net loss on securities compared to no such gain or loss in the year-ago six-month period. The current six-month period includes a$1.7 million gain on the sale of the Company's former headquarters building inWestbury, N.Y.
The following table summarizes our non-interest income for the respective periods:
68
--------------------------------------------------------------------------------Non-Interest Income Analysis
For the Six Months Ended
June 30, June 30,
(dollars in millions) 2022 2021
Fee income $ 12 $ 11
BOLI income 14 15
Net gain (loss) on securities (1 ) -
Other income:
Third-party investment product sales 2 -
Other 5 4
Total other income 7 4
Total non-interest income $ 32 $ 30
Non-Interest Expense
For the six months ended June 30, 2022 , non-interest expenses totaled $279
million , up $8 million or 3% compared to $271 million for the six months ended
June 30, 2021 . Merger-related expenses for the six months ended June 30, 2022
totaled $11 million , up $1 million or 10% compared to $10 million for the six
months ended June 30, 2021 . The efficiency ratio for the six months ended June
30, 2022 declined to 37.04% compared to 38.46% during the first six months of
2021.
Income Tax Expense
For the six months ended June 30, 2022 , income tax expense totaled $111 million ,
unchanged compared to the six months ended June 30, 2021 . The effective tax rate
for the six months ended June 30, 2022 was 25.39% compared to 27.11% for the six
months ended June 30, 2021 . The six months ended June 30, 2021 also included $2
million of additional income tax expense due to the revaluation of our deferred
taxes related to a change in the New York state tax rate.
69--------------------------------------------------------------------------------
© Edgar Online, source
