Business context and reporting period
New York Community Bancorp, Inc. (NYCB), the parent of Flagstar Bank, N.A., filed this unaudited consolidated Form 10-Q for the quarter ended September 30, 2023. Figures therefore reflect NYCB and its consolidated subsidiaries, not Flagstar Bank on a standalone basis. Results include Flagstar, acquired in December 2022, and Signature Bridge Bank assets and liabilities assumed in March 2023.
Key financial metrics
| Metric | Third quarter / September 30, 2023 | Comparison |
|---|---|---|
| Total assets | $111.2 billion | Up $21.1 billion from December 31, 2022, primarily from the Signature transaction |
| Deposits | $82.7 billion | Up $24.0 billion from year-end 2022 |
| Net interest income | $882 million | Down $18 million, or 2%, from Q2 2023; up from $326 million in Q3 2022 |
| Net interest margin | 3.27% | Up 6 basis points from Q2 2023; 2.39% in the first nine months of 2022 versus 3.05% in the first nine months of 2023 |
| Net income | $207 million; $199 million available to common shareholders; diluted EPS $0.27 | Q2 2023: $413 million and $0.55 diluted EPS; Q3 2022: $152 million and $0.30 diluted EPS |
| Provision for credit losses | $62 million | $49 million in Q2 2023; $2 million in Q3 2022 |
| Non-interest expense | $712 million | Up $51 million from Q2 2023, including $91 million of merger-related and restructuring expense |
| Loans held for investment, net | $83.4 billion; allowance $619 million | Loans were $69.0 billion and allowance $393 million at year-end 2022 |
| Borrowed funds | $14.6 billion | Down from $21.3 billion at year-end 2022 |
| Liquidity | $31.2 billion of ready liquidity; $6.9 billion cash and cash equivalents | Ready liquidity approximately matched $31.3 billion of uninsured deposits |
| Regulatory capital | Bank CET1 ratio 11.10%; total risk-based capital ratio 11.77% | Both exceeded stated minimum capital requirements |
Material changes versus comparable periods
- First-nine-month net interest income rose to $2.337 billion from $1.017 billion in 2022, primarily reflecting the Flagstar acquisition, the Signature transaction, loan growth, and higher rates. Deposit and borrowing costs also rose substantially.
- First-nine-month net income was $2.626 billion versus $478 million in 2022. The 2023 result included a $2.142 billion Signature bargain purchase gain; it is not representative of recurring operating earnings.
- Q3 net income fell from Q2, in part because Q2 included a $141 million bargain purchase gain and Q3 did not. Merger-related and restructuring expense was $91 million in Q3 versus $109 million in Q2.
- The loan mix shifted: multi-family loans declined to $37.7 billion, or 44.9% of held-for-investment loans, from $38.1 billion and 55.3% at year-end 2022; C&I loans increased to $24.4 billion from $12.3 billion, largely due to acquired loans and growth in specialty finance and mortgage warehouse lending.
- Asset quality weakened from year-end: non-performing loans rose to $434 million from $141 million, and NPLs were 0.52% of held-for-investment loans versus 0.20%. Non-performing assets were 0.40% of total assets, up from 0.17%.
Cash flow, risks, outlook and unusual items
- For the nine months, operating cash flow was negative $516 million; investing cash flow was positive $22.4 billion, including $25.0 billion of cash acquired in the Signature transaction; financing cash flow was negative $16.8 billion. These acquisition-driven flows complicate comparison with the prior year.
- The Q3 provision reflected a $13 million net benefit related to acquired Signature commercial loans and commitments, offset by a $75 million provision on the remainder of the portfolio. Management cited macroeconomic uncertainty, higher rates, slower prepayments, and unfavorable CRE conditions, particularly office.
- Q3 net charge-offs were $24 million. Two office-sector CRE loans added $139 million to non-performing loans during the quarter; multi-family non-performing loans also increased by $91 million. The allowance covered 143% of NPLs, down from 279% at year-end.
- Unrealized after-tax losses on available-for-sale securities were $863 million, compared with $626 million at year-end 2022, reflecting higher interest rates. Management said it did not intend, and was not more likely than not required, to sell the securities before recovery.
- The Signature transaction’s fair values remain subject to measurement-period adjustments. NYCB and the FDIC were discussing settlement adjustments, with a settlement date expected one year after the March 20, 2023 closing or as otherwise agreed. The filing reported no FDIC loss-sharing arrangement.
- A proposed FDIC special assessment was estimated by the Company at approximately $36 million; the final rule and actual impact were not yet determined. Proposed Basel III capital changes could also affect capital requirements if adopted.
- Management said liquidity and capital resources were sufficient for obligations over the next 12 months and foreseeable future. No quantified earnings guidance was provided. The Company disclosed cybersecurity incidents affecting it, acquired entities, or service providers, ongoing litigation regarding cyber incidents, and risks of further losses, regulatory scrutiny, expense, or customer attrition.
- After quarter-end, the Board declared a $0.17 per-share common dividend, payable November 16, 2023. Bank dividends to the parent are subject to OCC restrictions and approvals related to the acquisitions.
Important facts for investors to verify
- How much of reported earnings is recurring after excluding the $2.142 billion bargain purchase gain and acquisition-related costs?
- Whether Q3 increases in office and multi-family non-performing loans, delinquencies, charge-offs, and reserves persist or worsen.
- The final FDIC settlement and any revisions to Signature acquired-asset and liability fair values, including the bargain purchase gain.
- The stability and cost of deposits, including $31.3 billion of uninsured deposits, $8.1 billion of brokered deposits, and the ability to maintain liquidity as deposits reprice or mature.
- The sensitivity of net interest income, securities values, and regulatory capital to interest rates; the filing estimates NII changes of -3.0% under a 200-basis-point rate decline and +4.4% under a 200-basis-point increase over one year.
- The potential cost of the FDIC assessment, proposed capital rules, cybersecurity matters, and limits on upstream dividends and future capital distributions.