NYCB 2017 Annual Report

72 (Recoveries of) Provision for Losses on Loans Provision for (Recovery of) Losses on Non-Covered Loans The provision for losses on non-covered loans, like the recovery of non-covered loan losses, is based on the methodology used by management in calculating the allowance for losses on such loans. Reflecting this methodology, which is discussed in detail under “Critical Accounting Policies” earlier in this report, we recorded an $11.9 million provision for non-covered loan losses in the twelve months ended December 31, 2016 as compared to a $3.3 million recovery of non-covered loan losses in the twelve months ended December 31, 2015. Reflecting the 2016 provision and twelve-month net charge-offs of $708,000, the allowance for losses on non- covered loans rose to $158.3 million at the end of this December from $147.1 million at the prior year-end. Recovery of Losses on Covered Loans When an improvement in the credit quality of certain loan portfolios acquired in our FDIC-assisted transactions leads us to believe that the cash flows from those portfolios will exceed our expectations, we reverse the previously established covered loan loss allowance by recording a recovery. In accordance with this methodology, we recovered $7.7 million and $11.7 million, respectively, from the covered loan loss allowance in the twelve months ended December 31, 2016 and 2015. Reflecting the recoveries recorded in 2016, the allowance for losses on covered loans fell to $23.7 million from $31.4 million in the twelve months ended December 31, 2015. Non-Interest Income Non-interest income fell $65.2 million year-over-year to $145.6 million in the twelve months ended December 31, 2016. The reduction was primarily attributable to the following factors: • Mortgage banking income fell $26.8 million year-over-year to $27.3 million, primarily due to a first-quarter change in the assumptions used to calculate the value of our MSRs, together with an increase in loan payments and curtailments. • Other non-interest income fell to $41.6 million in the twelve months ended December 31, 2016 from $74.2 million in the twelve months ended December 31, 2015. While certain components of other non- interest income declined year-over-year, including revenues from PBC and the sale of third-party investments, the bulk of the year-over-year reduction was due to certain gains recorded in the prior year. The amount of other non-interest income recorded in 2015 was boosted by the combination of a $13.3 million gain on the sale of a bank-owned property and a $7.8 million gain on the sale of a multi- family property that had been classified as OREO. As no comparable gains were recorded in 2016, these two factors accounted for $21.1 million of the $32.6 million decline in other non-interest income from the level recorded in 2015. • The net gain on sales of loans, primarily through participations, fell $10.3 million year-over-year to $15.8 million. Non-Interest Expense Non-interest expense totaled $651.6 million in the twelve months ended December 31, 2016, as compared to $765.9 million in the year-earlier twelve-month period. Included in the 2015 amount was $141.2 million of the debt repositioning charge recorded in the fourth quarter; no comparable charge was recorded in 2016. In addition, merger-related charges accounted for $11.1 million of non-interest expense in 2016, as compared to $3.7 million in the prior year. While non-interest expense declined year-over-year, operating expenses rose $22.5 million to $638.1 million from the level recorded in 2015. Compensation and benefits expense accounted for $8.8 million of the year-over-year increase, having grown to $351.4 million in 2016. The increase was driven by a combination of factors, including an increase in medical benefits expense, back-office staff expansion, normal salary increases, and the granting of stock awards. In addition, G&A expense rose $17.6 million year-over-year to $188.1 million, primarily reflecting a $14.8 million increase in FDIC deposit insurance premiums to $61.1 million, as well as an increase in legal and professional fees. These increases, which included fees incurred in connection with our preparations for SIFI status, were only partly offset by a $3.9 million decrease in occupancy and equipment expense to $98.5 million, primarily representing an increase in rental income.