Business context and reporting period
Issuer mismatch: The supplied filing is New York Community Bancorp, Inc.’s Form 10-Q, with New York Community Bank as its bank subsidiary; it is not a filing by Flagstar Bank, National Association. The report covers the quarter and nine months ended September 30, 2019, and was signed November 12, 2019.
The company operated 239 branches across eight divisions. Its loan portfolio was heavily concentrated in multifamily real estate, particularly New York City rent-regulated housing.
Key financial metrics
| Metric | Q3 2019 / September 30, 2019 | Comparison |
|---|---|---|
| Total assets | $52.54 billion | Up $638 million from December 31, 2018 |
| Loans and leases, net | $40.69 billion | Up $689 million from year-end |
| Deposits | $31.57 billion | Up $808 million from year-end; down $760 million linked-quarter |
| Net income | $99.0 million | Down 7% year-over-year; up 2% linked-quarter |
| Net income available to common shareholders; diluted EPS | $90.8 million; $0.19 | Year-ago quarter: $98.6 million; $0.20 |
| Net interest income; net interest margin | $235.9 million; 1.99% | Year-ago: $249.5 million; 2.16%; margin was 2.00% in Q2 2019 |
| Non-interest income; non-interest expense | $24.4 million; $123.3 million | Expense down 8% year-over-year |
| Cash and cash equivalents | $854.7 million | Down from $1.47 billion at year-end |
| Total borrowed funds | $13.63 billion | Down $582 million from year-end |
| Stockholders’ equity | $6.70 billion | Common equity to assets: 11.79%; tangible common equity to tangible assets: 7.51% |
For the first nine months of 2019, net income was $293.9 million and diluted EPS was $0.57, down 8% and 5% respectively from the comparable 2018 period. Net interest income fell 9% to $714.9 million and NIM declined to 2.01% from 2.30%; higher funding costs outweighed growth in interest-earning assets. The provision for loan losses was $5.4 million versus $15.5 million in the first nine months of 2018.
Operating cash flow was $339.0 million for the nine months. Investing activities used $847.0 million and financing activities used $112.3 million; cash declined $620.3 million to $854.7 million. The bank reported $8.3 billion of available FHLB borrowing capacity and $1.2 billion of available Federal Reserve discount-window capacity, with no borrowings against those lines at quarter-end.
Capital ratios exceeded stated minimums. Consolidated common equity tier 1, tier 1, total risk-based capital, and leverage ratios were 10.15%, 11.49%, 13.61%, and 8.65%, respectively. The bank’s total risk-based capital ratio was 13.16% and it met the regulatory “Well Capitalized” thresholds.
Material changes versus comparable periods
- Quarterly NIM narrowed 17 basis points year-over-year. For the nine-month period, the average cost of interest-bearing liabilities rose 49 basis points to 2.03%, while average interest-earning asset yield rose 14 basis points to 3.81%.
- Deposits rose year-to-date, but the mix shifted: certificates of deposit increased to $14.26 billion, while interest-bearing checking and money-market balances fell to $9.96 billion. Brokered deposits reached $4.8 billion.
- Multifamily loans increased $385 million from year-end; commercial and industrial loans rose $454 million, driven largely by specialty finance. Multifamily loans were 74% of held-for-investment loans.
- Non-performing loans rose to $56.2 million from $45.5 million at year-end; non-performing assets were $67.9 million. The allowance for loan losses declined to $149.4 million from $159.8 million.
- Common shares outstanding declined to 467.4 million from 473.5 million at year-end. The company reported $227.9 million of cumulative purchases under its $300 million repurchase authorization through September 30, 2019.
Outlook, commentary, risks, and unusual items
- Management described NIM and net interest income as stabilizing in Q3: asset yields were steady quarter-over-quarter while funding costs eased modestly. No numerical earnings or margin guidance was provided.
- Management said some institutional deposits were selectively exited rather than matched at competitors’ higher rates, with a preference for lower-cost retail deposits and other funding.
- The Housing Stability and Tenant Protection Act of 2019 led some borrowers to postpone property investment decisions, tempering multifamily loan originations. Management also identified the law and New York rent regulation as risks to its concentrated multifamily business.
- Interest-rate sensitivity remains material: the company estimated a 2.72% decline in next-12-month net interest income under a 100-basis-point rate increase and a 2.63% increase under a 100-basis-point decline. An immediate yield-curve inversion was estimated to reduce net interest income 6.11%. These are model estimates, not forecasts.
- Other principal risks include New York-area real estate and borrower performance, CRE concentration and regulatory scrutiny, deposit competition and wholesale funding access, LIBOR transition for contracts extending beyond 2021, and operational, regulatory, and litigation risks.
- Taxi-medallion exposure remained notable: $61.0 million of loans, including $33.6 million non-accrual, and $9.7 million of repossessed medallions. Nine-month net charge-offs were $15.8 million, including $6.8 million related to taxi medallions.
- Unusual items included a $7.9 million gain on a Florida branch sale-leaseback and $1.4 million of Q3 severance costs. Nine-month severance and branch-rationalization costs totaled $10.4 million. The company had sold its wealth-management subsidiary in Q1 2019.
- Management expected adoption of CECL on January 1, 2020 to increase total credit-loss allowances by, at most, approximately 20%; this preliminary estimate remained subject to model refinement and validation.
- The board declared a $0.17-per-share common dividend on October 29, 2019, payable November 25, 2019. Management reported effective disclosure controls and no material change in internal control over financial reporting during the quarter. Ordinary-course legal matters were described as immaterial in aggregate.
Important facts for investors to verify
- Confirm the issuer: this filing is for New York Community Bancorp, Inc., not Flagstar Bank, National Association.
- Review multifamily concentration, especially the $18.3 billion of New York State rent-regulated multifamily loans, and assess the effects of the 2019 rent-law changes on collateral cash flows and originations.
- Track deposit mix, brokered funding, CD maturities (91.4% of CDs were due within one year), and the cost and availability of wholesale funding.
- Monitor non-performing loans, taxi-medallion losses, allowance coverage, and the estimated CECL-related allowance increase.
- Assess the assumptions behind interest-rate and yield-curve sensitivity estimates, including deposit behavior, loan prepayments, and the LIBOR-to-SOFR transition.
- Separate recurring earnings from the branch sale-leaseback gain, severance and rationalization costs, and the prior-year wealth-management income comparison.