Business context and reporting period
Entity mismatch: The request identifies Flagstar Bank, National Association, but the supplied filing is New York Community Bancorp, Inc. (NYSE: NYCB), the holding company for New York Community Bank and New York Commercial Bank. This summary reflects the supplied filing, not a Flagstar filing.
The filing is a Form 10-K for the fiscal year ended December 31, 2015. The company operated 257 branches across New York, New Jersey, Ohio, Florida, and Arizona. Its core business was multifamily and commercial real estate lending, alongside deposits and residential mortgage banking.
Financial results and position
| Metric | 2015 | 2014 |
|---|---|---|
| Total assets at year-end | $50.3 billion | $48.6 billion |
| Total loans, net, at year-end | $38.0 billion | $35.6 billion |
| Deposits at year-end | $28.4 billion | $28.3 billion |
| Borrowed funds at year-end | $15.7 billion | $14.2 billion |
| Net interest income | $408.1 million | $1.14 billion |
| Net income (loss) | $(47.2) million | $485.4 million |
| Diluted EPS | $(0.11) | $1.09 |
| Net interest margin | 0.94% | 2.67% |
| Operating cash flow | $(420.4) million | $722.4 million |
- The reported 2015 results include a $915.0 million pre-tax debt-repositioning charge: $773.8 million in interest expense and $141.2 million in non-interest expense. Its after-tax impact was $546.8 million. Excluding the interest-expense component, management reported non-GAAP net interest income of $1.18 billion and net interest margin of 2.71% for 2015; these are non-GAAP figures.
- Non-interest income was $210.8 million, up from $201.6 million. Operating expenses were $615.6 million, up from $579.2 million; total non-interest expense was $765.9 million, including the repositioning charge and $3.7 million of merger expenses.
- Cash and cash equivalents were $537.7 million at year-end. Investing activities used $1.40 billion of cash and financing activities provided $1.79 billion.
- Stockholders’ equity was $5.93 billion, or 11.79% of assets. Common equity Tier 1 capital was 10.49%, total risk-based capital 12.05%, and leverage capital 7.77%. Both subsidiary banks were reported as well capitalized.
Material changes versus the prior comparable period
- Net loss replaced 2014 net income, chiefly because of the one-time debt-repositioning charge. Fourth-quarter 2015 net loss was $404.8 million, or $(0.87) per diluted share; the first nine months produced $357.7 million of net income.
- The company prepaid $10.4 billion of wholesale borrowings averaging 3.16% and replaced them with borrowings averaging 1.58%, with fixed maturities. Borrowed funds nevertheless rose year over year to $15.7 billion.
- Loans held for investment grew 8.3% to $35.8 billion. Multifamily loans reached $26.0 billion; the company sold $1.9 billion of multifamily and CRE participations to manage asset growth. Securities declined $922.8 million to $6.2 billion.
- Asset quality improved: non-performing non-covered loans fell 39.2% to $46.8 million, and non-performing non-covered assets fell 56.2% to $60.9 million. The non-covered allowance was $147.1 million; net recoveries were $8.2 million.
- The company issued 40.625 million shares in a follow-on offering, raising $630.5 million. Year-end shares outstanding increased to 484.9 million from 442.6 million, while book value per share declined to $12.24 from $13.06.
Outlook, commentary, risks, and unusual items
- Management expected the lower borrowing costs from the debt repositioning to produce approximately $100 million of annual after-tax earnings benefit beginning in 2016. This is management’s expectation, not a guarantee.
- The quarterly dividend was reduced from $0.25 to $0.17 per share beginning in 2016. The board declared the $0.17 dividend in January 2016; the company said FRB non-objection was required for 2016 dividends following the repositioning charge.
- The company expected to exceed the $50 billion average-asset SIFI threshold in the second quarter of 2016, bringing additional stress-testing and prudential requirements; it expected modified LCR compliance to begin July 1, 2016 under the rules then in effect.
- The proposed Astoria Financial merger, announced October 2015, was expected to close by the fourth quarter of 2016, subject to shareholder and regulatory approvals. Management expected approximately $9.1 billion of additional deposits. Seven shareholder lawsuits challenged the transaction and could delay or prevent closing; the company said it would defend the claims.
- Credit exposure is concentrated in New York-area multifamily and CRE lending: 70.4% of multifamily loans and 72.4% of CRE loans were secured by New York City properties. Management cited local real estate conditions, interest rates, deposit competition, funding access, merger execution, and regulatory change as key risks.
- The reported one-year interest-rate gap was negative 17.77%. Company modeling estimated that a parallel 100-basis-point rate increase would reduce next-12-month net interest income by 4.55%; a 200-basis-point increase would reduce it by 7.98%. The filing cautions that these estimates depend on assumptions and may differ from actual results.
Most important facts for investors to verify
- Confirm the issuer: the provided document is NYCB’s 2015 Form 10-K, not a Flagstar Bank, N.A. filing.
- Reconcile the $915.0 million pre-tax charge, its $546.8 million after-tax effect, the $630.5 million stock offering, and whether the expected annual savings materialized after 2015.
- Check subsequent developments in the Astoria merger, litigation, integration costs, and expected deposit benefits.
- Assess the reduced dividend, regulatory approval requirements, and capital and liquidity needs as the company crossed the SIFI threshold.
- Review multifamily and CRE geographic concentration, delinquency and loss trends, and the performance of FDIC-covered assets as loss-sharing agreements approach expiration in 2019–2020.
The independent auditor issued an unqualified opinion on the consolidated financial statements and on internal control over financial reporting as of December 31, 2015.