Filing summary: New York Community Bancorp, Inc. — FY2016
Entity note: The supplied filing is New York Community Bancorp, Inc.’s Form 10-K for the year ended December 31, 2016, not a filing by Flagstar Bank, National Association. The figures below summarize the filing provided.
Business context and reporting period
NYCB is a multi-bank holding company operating New York Community Bank and New York Commercial Bank, with 255 branches across five states. Its lending is concentrated in multifamily and commercial real estate, especially New York City; it also originates residential mortgages for sale and specialty finance loans. The report covers the fiscal year ended December 31, 2016, with 2015 as the main comparison.
Key financial metrics
| Metric | FY2016 / year-end | FY2015 / year-end |
|---|---|---|
| Net income (loss) | $495.4 million | $(47.2) million |
| Diluted earnings (loss) per share | $1.01 | $(0.11) |
| Net interest income | $1,287.4 million | $408.1 million |
| Net interest margin | 2.93% | 0.94% |
| Net interest rate spread | 2.85% | 0.69% |
| Total assets | $48.93 billion | $50.32 billion |
| Total loans, net | $39.31 billion | $38.01 billion |
| Deposits | $28.89 billion | $28.43 billion |
| Borrowed funds | $13.67 billion | $15.75 billion |
| Stockholders’ equity | $6.12 billion; 12.52% of assets | $5.93 billion; 11.79% of assets |
| Cash and cash equivalents | $557.9 million | $537.7 million |
| Operating cash flow | $755.7 million | $(420.4) million |
| Net cash from investing activities | $1.22 billion | $(1.40) billion |
| Net cash used in financing activities | $(1.95) billion | $1.79 billion |
Non-interest income was $145.6 million, down from $210.8 million; operating expenses were $638.1 million, up from $615.6 million. The efficiency ratio was 44.53%, compared with 99.48% in 2015, which included the large debt-repositioning charge. The 2016 effective tax rate was 36.25%.
Asset quality remained strong overall: non-performing non-covered loans were $56.5 million, or 0.15% of non-covered loans, versus $46.8 million, or 0.13%, in 2015. Net charge-offs were $708,000; the allowance for non-covered loan losses was $158.3 million. Multifamily and CRE loans together made up about 92.8% of non-covered loans held for investment. Regulatory capital ratios at year-end included a 10.62% common equity tier 1 ratio and 12.12% total risk-based capital ratio for the holding company; the company and both banks were classified as well-capitalized.
Material changes versus the prior comparable period
- Profit returned after the 2015 net loss, chiefly because 2015 included a $915.0 million pretax charge to prepay $10.4 billion of higher-cost wholesale borrowings. The replacement funding averaged 1.58% versus 3.16% for the prepaid debt; the benefit flowed into 2016 interest expense and margins.
- Assets declined $1.39 billion, as loans grew $1.30 billion but securities fell $2.36 billion, mainly from repayments and calls. The company sold $1.7 billion of multifamily, CRE, and ADC loans, partly to keep assets below the $50 billion SIFI threshold.
- Deposits rose $461.1 million and borrowed funds fell $2.08 billion. CDs increased $2.26 billion, while savings balances declined $2.26 billion.
- Mortgage banking income fell $26.8 million to $27.3 million, partly due to revised mortgage servicing rights assumptions and higher prepayments and curtailments. Loan prepayment income also declined to $60.9 million from $97.3 million.
- Non-interest income fell $65.2 million, reflecting lower mortgage banking income, lower loan-sale gains, and the absence of $21.1 million of 2015 property-sale gains. Operating expenses increased, including higher FDIC premiums and legal and professional fees.
Outlook, commentary, risks, contingencies, and unusual items
- Outlook and strategy: No earnings guidance was provided. Management said it continued to manage assets below the SIFI threshold; four-quarter average assets were $49.0 billion at year-end. Crossing $50 billion could bring additional prudential, stress-testing, and liquidity requirements.
- Interest-rate risk: The one-year cumulative gap was negative 21.37%. The company’s model estimated that an immediate 100-basis-point rate increase would reduce next-12-month net interest income by 2.47%; a 200-basis-point increase by 5.56%. These are model estimates dependent on assumptions, not forecasts.
- Credit concentration: Multifamily, CRE, and ADC loans equaled 821% of consolidated bank risk-based capital, within the company’s agreed 850% limit. Most multifamily and CRE exposures are tied to New York City, making local property conditions important.
- Emerging credit concern: Non-accrual taxi-medallion loans rose amid declining medallion values and competition from ride-sharing services. Total taxi-medallion loans were $150.7 million; $13.3 million moved to non-accrual in 2016. Non-performing non-covered loans also included one ADC credit that became non-accrual.
- Merger and litigation: The Astoria Financial merger agreement was terminated by mutual agreement, effective January 1, 2017. Related expenses were $11.1 million in 2016. A related shareholder lawsuit remained, though management expected the proposed settlement to terminate with the merger and said it would defend the claims if pursued.
- Dividend and liquidity: The company paid $0.68 per share in 2016, down from $1.00 in 2015; the board declared a $0.17 quarterly dividend in January 2017. Federal Reserve non-objection was required for 2016 dividends. Available FHLB borrowing capacity was $7.5 billion; total loan and letter-of-credit commitments were $2.40 billion.
- Accounting and contingencies: Goodwill was $2.44 billion, with no impairment identified in 2016. The company identified expected-credit-loss accounting (ASU 2016-13) as potentially material upon adoption, planned for 2020. The auditor gave unqualified opinions on the financial statements and internal control; management reported effective disclosure controls and internal control over financial reporting.
Important facts for investors to verify
- Confirm the filing issuer: the provided 10-K is for New York Community Bancorp, Inc., not Flagstar Bank, National Association.
- Reconcile 2016 earnings and margin improvement with the unusual $915.0 million 2015 debt-repositioning charge; the headline year-over-year comparison is not like-for-like.
- Track progress toward the $50 billion SIFI asset threshold and the effect of loan sales, securities repayments, and any resulting regulatory requirements.
- Monitor New York multifamily and CRE concentration, the 850% CRE-related capital limit, and changes in taxi-medallion and ADC credit performance.
- Assess dividend sustainability, the need for Federal Reserve non-objection, deposit pricing and mix, and reliance on wholesale funding.
- Review the Astoria-related litigation status, mortgage-servicing-rights valuation assumptions, and the eventual impact of expected-credit-loss accounting.