Filing identity and reporting period
Important issuer mismatch: The supplied filing is New York Community Bancorp, Inc.’s Form 10-Q for the quarter ended June 30, 2017, not a filing by Flagstar Bank, National Association. The figures below summarize the filing text provided and should not be attributed to Flagstar. New York Community Bancorp reported through its Community Bank and Commercial Bank, with banking operations and residential mortgage banking segments.
Financial performance and condition
Unless stated otherwise, dollar amounts are in millions. Second-quarter income-statement comparisons are year over year; balance-sheet comparisons are against December 31, 2016.
| Metric | Q2 or June 30, 2017 | Comparison / context |
|---|---|---|
| Net interest income | $287.8 | Down 11.6% from Q2 2016; net interest margin was 2.65%, versus 2.99%. |
| Non-interest income | $50.4 | Up from $37.4; included a $26.9 gain on securities sales and $14.3 of FDIC indemnification expense. |
| Net income | $115.3 | Versus $126.5 in Q2 2016. Net income available to common shareholders was $107.0, or $0.22 per diluted share, versus $126.5, or $0.26. |
| Total assets | $48.35 billion | Down $578.9 from year-end. |
| Loans, net | $38.90 billion | Down $407.9 from year-end; includes loans reclassified or originated for sale. |
| Deposits | $28.89 billion | Essentially unchanged from year-end. |
| Borrowed funds | $12.36 billion | Down $1.31 billion from year-end; wholesale borrowings were $12.00 billion. |
| Cash and cash equivalents | $1.13 billion | Up from $557.9 at year-end. |
| Stockholders’ equity | $6.73 billion | Up $610.8 from year-end, primarily reflecting a $502.8 preferred-stock issuance. |
For the six months ended June 30, operating cash flow was $536.5, investing cash flow was $1,021.9, and financing cash flow was negative $986.4; cash increased $572.0. The company reported a 14.11% total risk-based capital ratio and a 9.23% leverage ratio at quarter-end, above the stated minimums. Tangible common equity was 8.27% of tangible assets, a non-GAAP measure.
Material changes and management commentary
- Six-month net income available to common shareholders fell to $211.0 from $256.4 a year earlier; diluted EPS was $0.43 versus $0.52. Six-month net interest income declined $70.8 to $582.7, while net interest margin fell to 2.68% from 2.96%.
- Management attributed pressure on net interest income and margin to higher funding costs following Federal Reserve rate increases, lower asset yields and reduced prepayment income, and restraint on balance-sheet growth. Q2 cost of funds rose to 1.14% from 0.96% a year earlier. Prepayment income was $15.0 in Q2, down from $26.2 in Q2 2016.
- The company sold approximately $521 million of held-to-maturity securities in the first half, recognizing a $26.9 gain, and transferred the remaining portfolio to available-for-sale. Management said this increased interest-rate-risk and liquidity flexibility.
- Loan originations for investment were $1.87 billion in Q2, up 12.8% sequentially, but balances were tempered by prepayments and loan participations sold. Multi-family and commercial real estate loans made up most non-covered loans held for investment.
- Non-performing non-covered assets rose to $91.6, or 0.20% of non-covered assets. Non-performing non-covered loans increased to $82.0, principally reflecting taxi-medallion and related C&I exposures. Q2 net charge-offs were $11.4, of which $10.9 related to taxi-medallion loans; the non-covered loan-loss provision was $11.6.
- Liquidity included $7.2 billion of available FHLB borrowing capacity and $3.2 billion of available-for-sale securities. However, $7.6 billion of certificates of deposit—92.4% of CDs—were due to mature within one year.
Outlook, transactions, and risks
- No specific earnings or margin guidance is provided in the supplied filing text. Management described plans to resume growth in the second half of 2017 and redeploy liquidity into higher-earning assets.
- The company agreed to sell its mortgage banking business, including origination and servicing platforms and residential mortgage servicing rights, to Freedom Mortgage. The sale was expected to close in Q3 2017, subject to conditions.
- The sale of covered residential mortgage-related assets to a Cerberus affiliate closed July 28, 2017, after quarter-end; the company received $1.9 billion. Management estimated the two announced transactions together would produce an approximately $90 million pre-tax gain and cost savings.
- Interest-rate sensitivity modeling estimated future net interest income would decline 2.40% under a 100-basis-point increase and 5.86% under a 200-basis-point increase. The one-year cumulative interest-rate gap was negative 23.83% of assets. These are model estimates and depend on assumptions about prepayments and deposit behavior.
- Key risks cited include interest-rate and real-estate-market changes, concentrated multi-family/CRE lending, taxi-medallion credit deterioration, deposit and wholesale-funding availability, regulation, litigation, and the uncertainty inherent in MSR and loan-loss estimates. The company said there were no material changes to risk factors from its 2016 Form 10-K; ordinary-course legal proceedings were considered immaterial in aggregate.
- The filing says adoption of the expected-credit-loss standard (ASU 2016-13), planned for January 1, 2020, could materially affect financial condition and results; the impact was still under evaluation.
Most important facts for investors to verify
- Confirm the issuer: this is New York Community Bancorp’s filing, not Flagstar’s.
- Assess whether the decline in net interest income and margin persists as deposit and borrowing costs reprice.
- Track taxi-medallion delinquencies, charge-offs, provisions, and the adequacy of loan-loss reserves.
- Verify completion and final economics of the Freedom Mortgage transaction, including the expected gain, cost savings, and treatment of servicing rights.
- Review the effect of the $1.9 billion Cerberus proceeds on liquidity, asset mix, and subsequent reported earnings.
- Monitor near-term CD maturities, wholesale-funding reliance, CRE concentration, and the assumptions underlying interest-rate sensitivity estimates.