Business context and reporting period
The supplied filing is New York Community Bancorp, Inc. (NYCB), not Flagstar Bank, National Association. It is NYCB’s unaudited Form 10-Q for the quarter ended September 30, 2021. NYCB is a bank holding company whose subsidiary, New York Community Bank, operated 236 branches. Flagstar Bancorp was the subject of a pending acquisition; the filing does not report Flagstar Bank, N.A.’s standalone financial results.
Key financial metrics
| Metric | Q3 2021 / September 30, 2021 | Comparison |
|---|---|---|
| Total assets | $57.9 billion | Up 5% year over year |
| Loans and leases held for investment, net | $43.5 billion | Up 2% year over year |
| Deposits | $34.6 billion | Up 9% year over year |
| Borrowed funds | $15.4 billion | Down 2% year over year |
| Stockholders’ equity | $7.0 billion | Up 3% year over year |
| Net interest income | $318 million | Up 13% year over year |
| Net interest margin | 2.44% | Up 15 basis points year over year; 2.50% in Q2 2021 |
| Net income | $149 million | Up 28% year over year |
| Net income available to common shareholders; diluted EPS | $140 million; $0.30 | Up 31%; EPS up 30% year over year |
| Cash and cash equivalents | $2.5 billion | Up from $1.9 billion at December 31, 2020 |
For the first nine months of 2021, net interest income was $967 million, net income was $446 million, and diluted EPS was $0.90, compared with $792 million, $321 million, and $0.63, respectively, in the same 2020 period. Net cash provided by operating activities was $75 million, investing activities used $757 million, and financing activities provided $1.256 billion. Cash increased $574 million to $2.522 billion.
Q3 interest expense fell $39 million year over year to $97 million, largely reflecting lower deposit costs. The average cost of deposits declined 50 basis points to 0.35%; total cost of funds was 0.87%. The allowance for credit losses on loans and leases was $200 million, or 0.46% of loans, and the allowance for unfunded commitments was $12 million. The company reported a $1 million credit-loss recovery for Q3 and the nine-month period.
At September 30, NYCB reported consolidated common equity tier 1, total risk-based capital, and leverage ratios of 9.92%, 13.11%, and 8.50%, respectively. The Bank’s corresponding ratios were 12.32%, 12.76%, and 9.41%; the filing states the Bank exceeded “well capitalized” minimums. Tangible common equity to tangible assets was 7.28% (a non-GAAP measure).
Material changes versus comparable periods
- Profitability improved year over year, driven primarily by sharply lower interest expense and a lower credit-loss provision/recovery; interest income was slightly lower in Q3.
- Deposit mix shifted toward core balances: non-interest-bearing deposits rose 60% year over year to $4.9 billion, while certificates of deposit fell 21% to $8.7 billion and declined to 25% of deposits from 35% a year earlier. Management said some newer, short-term deposits tied to customer spending patterns were expected to run off over the next year.
- Non-performing loans declined to $28 million from $38 million at year-end 2020, but loans 30–89 days past due rose to $447 million from $16 million. About $377 million related to 55 loans to one borrower, primarily Manhattan multifamily and mixed-use properties; the loans were under a CARES Act-related deferral agreement. Management stated it was well-secured and did not expect losses on this relationship.
- Merger-related expenses were $6 million in Q3 and $16 million for the first nine months. Nine-month results also included a $2 million deferred-tax valuation adjustment related to an increase in New York State’s corporate tax rate.
Outlook, commentary, risks, contingencies, and unusual items
- Flagstar transaction: NYCB’s announced all-stock acquisition, valued at $2.6 billion when announced, was expected to close as soon as possible in 2022, subject to regulatory approval, rather than in Q4 2021 as previously anticipated. The proposed exchange is 4.0151 NYCB shares per Flagstar share; expected ownership is 68% for NYCB shareholders and 32% for Flagstar shareholders. The filing describes a combined company with more than $85 billion in assets. These are transaction expectations, not completed results.
- Credit and concentration: Approximately 75% of loans held for investment were multifamily loans, with substantial New York City and broader Metro New York exposure. Management cited potential further economic weakness and lower New York City property values as factors in its credit-loss estimates. The filing also disclosed $914 million of principal deferrals outstanding, down 9% from the prior quarter; all full-payment deferrals had returned to payment status.
- Interest-rate risk: The one-year gap was negative 6.14%. Modeling estimated net interest income would decline 1.56% under a 100-basis-point rate increase and 4.15% under a 200-basis-point increase; an immediate yield-curve inversion was estimated to reduce net interest income 7.37%. These are model estimates based on assumptions, not forecasts.
- Liquidity: Available FHLB-NY borrowing capacity was $8.3 billion; $4.7 billion of available-for-sale securities was unencumbered; FRB-NY discount-window capacity was $1.1 billion, with no borrowings outstanding. CDs totaling $7.6 billion matured within one year.
- Legal matters: Lawsuits by alleged NYCB and Flagstar shareholders challenged disclosures or aspects of the proposed merger. NYCB said it believed the claims against it were without merit.
- The filing provides no clear quantified earnings guidance. It highlights risks including COVID-19, real estate and interest-rate conditions, deposit flows, regulation, and the timing, approval, and integration of the Flagstar transaction.
Most important facts for investors to verify
- Confirm the intended subject: this filing covers NYCB and New York Community Bank, not Flagstar Bank, N.A.
- Check subsequent regulatory approvals, closing timing, exchange terms, and any changes to the Flagstar transaction.
- Track performance and payment status of the 55-loan borrower relationship behind most of the $447 million in early-stage delinquencies, as well as the remaining principal deferrals.
- Assess deposit retention and runoff, including short-term Banking-as-a-Service and borrower-related balances, and the upcoming $7.6 billion of CD maturities.
- Monitor credit-loss allowances, property-value and rent-regulation exposures, and the effect of interest-rate changes on net interest income.