Filing summary
Entity mismatch: The supplied filing is the 2017 Form 10-K of New York Community Bancorp, Inc. (NYSE: NYCB), not Flagstar Bank, National Association. Verify that this is the intended filing before relying on the summary.
Business context and reporting period
The filing covers the fiscal year ended December 31, 2017, with comparative results for 2016 and 2015. NYCB is a multi-bank holding company operating New York Community Bank and New York Commercial Bank. Its lending is concentrated in New York-area multifamily and commercial real estate; the filing reports 225 Community Bank branches and 30 Commercial Bank branches.
Key financial metrics
| Metric | 2017 | 2016 |
|---|---|---|
| Net interest income | $1.130 billion | $1.287 billion |
| Net income | $466.2 million | $495.4 million |
| Net income available to common shareholders | $441.6 million | $495.4 million |
| Diluted earnings per common share | $0.90 | $1.01 |
| Net interest margin | 2.59% | 2.93% |
| Return on average assets | 0.96% | 1.00% |
| Efficiency ratio | 47.61% | 44.53% |
- Revenue and costs: Non-interest income was $216.9 million, up from $145.6 million, including $82.0 million of gains on sales of covered loans and the mortgage banking business and a $26.6 million increase in net securities-sale gains. Non-interest expense was $641.4 million, down from $651.6 million, although operating expenses rose modestly.
- Credit costs and asset quality: The non-covered loan-loss provision was $60.9 million, versus $11.9 million in 2016; net charge-offs were $61.2 million, principally taxi-medallion-related. Non-performing non-covered loans were $73.7 million, or 0.19% of non-covered loans, compared with $56.5 million, or 0.15%, a year earlier. The allowance was $158.0 million.
- Balance sheet and funding: Year-end assets were $49.1 billion; net loans were $38.3 billion; deposits were $29.1 billion; borrowed funds were $12.9 billion; and total stockholders’ equity was $6.8 billion. Deposits rose 0.7% year over year and borrowed funds declined 5.7%. Cash and cash equivalents increased to $2.5 billion from $557.9 million.
- Liquidity and cash flow: The cash flow statement reports $1.327 billion provided by operating activities, $1.062 billion provided by investing activities, and $418.1 million used in financing activities. Available FHLB borrowing capacity was $7.1 billion; $2.3 billion of available-for-sale securities were unpledged. The MD&A contains an apparent inconsistent reference to operating cash flow of “$1.3 million”; the cash flow statement reports $1.327 billion.
- Capital and shareholder returns: Company regulatory ratios were 11.36% CET1, 12.84% Tier 1, 14.32% total risk-based capital, and 9.58% leverage. The company issued $502.8 million of Series A preferred stock. Common dividends were $0.68 per share for the year; the board declared $0.17 per share for the first quarter of 2018.
Material changes versus 2016
- Net income declined 6%; income available to common shareholders and diluted EPS each declined 11%. Net interest income fell 12%, and net interest margin narrowed by 34 basis points, primarily as funding costs increased and asset yields and prepayment income declined.
- Interest expense rose $64.7 million, with average cost of funds up 20 basis points. The Federal Reserve raised its target rate three times during 2017.
- NYCB sold its FDIC-covered residential loan portfolio in July and its mortgage banking business in September, exiting the one-to-four-family wholesale lending business. No covered loans remained at year-end.
- The company repositioned its securities portfolio: it sold approximately $521 million of held-to-maturity securities, recording a $26.9 million pre-tax gain, and designated the remaining portfolio available-for-sale.
- After several years without balance-sheet growth, the company resumed organic growth in the fourth quarter; assets grew at a reported 5.5% annualized rate versus the prior quarter. Non-covered held-for-investment loans rose 1.7% year over year, excluding the sold covered portfolio.
Outlook, risks, and unusual items
- Management expected an effective income tax rate of approximately 26.5% in 2018. The 2017 tax expense included a one-time $42 million benefit from the Tax Cuts and Jobs Act. The filing provides no specific earnings or revenue guidance.
- Multifamily, CRE, and ADC loans were 742.1% of the Banks’ total risk-based capital, below the company’s stated 850% limit. These loan categories represented the large majority of the portfolio, with substantial New York City exposure.
- Taxi-medallion exposures were $99.1 million at year-end; $46.7 million was non-accrual. The company recorded $59.6 million of taxi-medallion-related net charge-offs during 2017.
- Interest-rate exposure is material: the one-year gap was negative 19.57%. The company’s model estimated that an immediate 100-basis-point rate increase would reduce next-12-month net interest income by 4.27%; a 200-basis-point increase would reduce it by 7.83%. These are model estimates, not forecasts.
- Average consolidated assets were $48.7 billion, close to the then-applicable $50 billion SIFI threshold. Crossing it could bring additional prudential and capital-planning requirements. The planned merger of the Commercial Bank into the Community Bank remained pending FDIC approval.
- Common and preferred cash dividends required Federal Reserve non-objection; the company received non-objections for 2017 dividends and expected to continue seeking them. Legal proceedings were described as ordinary-course matters believed immaterial. The auditors gave unqualified opinions on the financial statements and internal control over financial reporting.
Important facts for investors to verify
- Confirm the intended issuer: this summary is based on NYCB’s filing, not a Flagstar Bank, National Association filing.
- Review the full audited statements and notes for cash flow presentation, loan-loss allowances, and the effects of the portfolio and business sales.
- Assess the persistence of net interest margin pressure, deposit repricing, prepayment income, and the disclosed rising-rate sensitivity.
- Track taxi-medallion credit performance, multifamily and CRE concentration, and the company’s stated CRE concentration limit.
- Verify the status of the bank merger, Federal Reserve dividend non-objections, and any regulatory consequences if average assets reach the SIFI threshold.
- Separate recurring earnings from the 2017 sale gains and one-time tax benefit when evaluating year-over-year performance.