Business context and reporting period
Important entity mismatch: The supplied filing is New York Community Bancorp, Inc.’s Form 10-Q for the quarter ended June 30, 2019, with New York Community Bank as its banking subsidiary. It is not a filing for Flagstar Bank, National Association.
NYCB operated 239 branches across eight divisions. Its lending was concentrated in New York-area multifamily and commercial real estate, alongside a growing commercial and industrial specialty-finance portfolio. Financial amounts below are in U.S. dollars; “Q2” means the three months ended June 30, 2019, and six-month comparisons are year over year unless noted.
Financial performance and position
| Metric | Reported result |
|---|---|
| Q2 net income | $97.2 million, down 9% from $107.4 million in Q2 2018; diluted EPS was $0.19 versus $0.20. |
| Six-month net income and EPS | $194.8 million and $0.38 per diluted share, versus $213.9 million and $0.40 in first-half 2018. |
| Q2 net interest income and margin | $237.7 million; net interest margin was 2.00%, down 3 basis points from Q1 2019 and 33 basis points year over year. Excluding prepayment income, reported adjusted NIM was 1.89%. |
| Six-month net interest income | $479.0 million, down 10%; NIM was 2.02%, down 35 basis points year over year. |
| Operating expenses | Q2 non-interest expense was $123.1 million, down 11% year over year. First-half expense was $261.8 million, down 6%, and included $9.0 million of severance and branch-rationalization costs. |
| Credit costs and asset quality | Q2 provision for loan losses was $1.8 million; first-half provision was $0.6 million versus $14.3 million in first-half 2018. June 30 allowance was $151.1 million, or 0.37% of loans. Non-performing loans were $51.4 million (0.13% of loans) and non-performing assets were $63.1 million. |
| Cash flow | For the first half, operating cash flow was $259.0 million, investing cash flow was negative $697.6 million, and financing cash flow was $192.0 million. Cash and cash equivalents declined $246.7 million to $1.23 billion. |
| Balance sheet and funding | At June 30, assets were $52.8 billion, net loans $40.7 billion, deposits $32.3 billion, and total stockholders’ equity $6.67 billion. Borrowed funds were $13.1 billion, down from $14.2 billion at year-end 2018. |
| Capital and liquidity | Consolidated CET1, total risk-based capital, and leverage ratios were 10.02%, 13.46%, and 8.64%, respectively. The Bank’s corresponding ratios were 12.63%, 13.03%, and 9.60%; it exceeded regulatory “well capitalized” thresholds. Available FHLB borrowing capacity was $8.9 billion and FRB-NY discount-window capacity was $1.3 billion; neither line was drawn at quarter-end. |
Material changes versus comparable periods
- Interest expense increased faster than interest income: Q2 interest expense was $216.1 million versus $153.4 million a year earlier, contributing to lower net interest income and margin. Management attributed pressure chiefly to higher funding costs, especially on CDs.
- Deposits rose $1.6 billion from year-end, while borrowed funds fell $1.1 billion. Much of deposit growth came from certificates of deposit, which increased $2.1 billion; CDs represented 44.2% of deposits at quarter-end, and 87.5% of CDs were due within one year.
- Net loans increased $719.5 million from year-end. Multifamily loans rose $581.9 million and C&I loans rose $388.4 million, while CRE balances declined modestly. Specialty-finance loans and leases grew $402.2 million to $2.3 billion.
- Non-performing loans were down 12% from Q1 2019, according to management, but were up 13% from December 31, 2018. Taxi medallion-related non-accrual loans totaled $32.9 million; remaining taxi medallion loans were $65.3 million.
- First-half securities gains were $7.5 million, compared with a $0.8 million securities loss in first-half 2018. The decline in other income partly reflected the sale of the Peter B. Cannell wealth-management business in Q1 2019.
- The company repurchased $67.1 million of shares under its buyback program in Q1. By June 30, cumulative repurchases under the authorization were $227.9 million, leaving $72.1 million authorized.
Outlook, commentary, risks and unusual items
- No specific earnings or revenue guidance is provided in the supplied filing text. Management described NIM as stabilizing, while noting that higher funding costs pressured the quarter. Q2 prepayment income was $12.6 million and contributed 11 basis points to NIM.
- The June 2019 New York Housing Stability and Tenant Protection Act may constrain rent increases and deregulation of rent-regulated apartments. The company said the full effect was not yet measurable; it could affect collateral values or property income. About $18.4 billion, or 60%, of multifamily loans were secured by New York State properties subject to the new laws.
- Credit and concentration risks include dependence on multifamily and CRE property cash flows, geographic concentration in Metro New York, and the possibility that local economic or real-estate weakness could impair repayment or collateral. ADC lending carries higher credit risk. Taxi medallion exposures remain a specific stressed credit issue.
- Interest-rate risk remains material. The company’s one-year gap was negative 13.46%. Its model estimated that a 100-basis-point rate increase would reduce next-12-month net interest income 2.54%, while a 100-basis-point decrease would increase it 2.48%; estimates depend on assumptions about prepayments and deposit behavior.
- Management cited the LIBOR phase-out after 2021 as a transition risk and said an internal committee was evaluating loan documentation, procedures, and systems for the move to SOFR. The filing also identifies deposit competition, wholesale funding access, regulatory change, litigation, technology and cybersecurity, and capital-market access as risks.
- The company adopted lease accounting in 2019 and recorded $308.4 million of operating lease right-of-use assets and $308.1 million of lease liabilities. Q2 and first-half lease-asset amortization included $11.7 million related to closing certain locations.
- Management reported effective disclosure controls and procedures and no material change in internal control over financial reporting during the quarter. Ordinary-course legal matters were described as immaterial in the aggregate.
Most important facts for investors to verify
- Confirm the intended issuer: the source filing is NYCB, not Flagstar Bank, National Association.
- Track whether deposit growth remains sustainable and the cost and renewal behavior of the large, short-maturity CD base.
- Assess whether net interest margin stabilizes as funding costs change, and how much reported earnings depend on volatile prepayment income and securities gains.
- Monitor implementation and financial effects of New York rent-regulation changes on multifamily borrowers, property income, and collateral values.
- Review trends in non-performing C&I and taxi medallion credits, charge-offs, TDRs, and allowance adequacy; distinguish sequential improvement from the increase in problem loans since year-end.
- Check the assumptions behind interest-rate sensitivity estimates and the company’s progress in transitioning LIBOR-linked exposures.
- Confirm capital, liquidity availability, and remaining share-repurchase authorization alongside the company’s dividend capacity.