Business context and reporting period
The supplied filing is New York Community Bancorp, Inc.’s consolidated Form 10-K for the fiscal year ended December 31, 2019, filed February 28, 2020. It covers New York Community Bank, a New York-chartered savings bank operating 238 branches across five states, with lending concentrated in New York multifamily and commercial real estate. The request metadata names Flagstar Bank, National Association, but the filing text identifies New York Community Bancorp, Inc. as the registrant; these are not the same entity.
Financial and operating performance
| Metric | 2019 | 2018 |
|---|---|---|
| Net interest income | $957.4 million | $1,031.0 million |
| Net income | $395.0 million | $422.4 million |
| Net income available to common shareholders | $362.2 million | $389.6 million |
| Diluted EPS | $0.77 | $0.79 |
| Net interest margin | 2.02% | 2.25% |
| Non-interest income | $84.2 million | $91.6 million |
| Non-interest expense | $511.2 million | $546.6 million |
| Net cash from operating activities | $509.8 million | $540.4 million |
- Year-end assets were $53.6 billion, up 3.4%; net loans were $41.7 billion, deposits $31.7 billion, borrowed funds $14.6 billion, and total stockholders’ equity $6.7 billion.
- Loans grew 4.3% to $41.8 billion gross. Multifamily loans were $31.2 billion (74.5% of loans); commercial real estate loans were $7.1 billion. Specialty finance loans and leases grew 35% to $2.6 billion.
- Cash and cash equivalents were $741.9 million, down from $1.5 billion. The company reported $7.9 billion of available FHLB-NY borrowing capacity and $1.1 billion of potential Federal Reserve discount-window capacity, with no borrowings against either line at year-end.
- Net charge-offs were $19.3 million, or 0.05% of average loans. Nonperforming assets were $73.5 million (0.14% of assets); nonperforming loans were $61.2 million (0.15% of loans). The allowance for loan losses was $147.6 million, or 241.1% of nonperforming loans.
- Company regulatory capital ratios were 9.91% common equity tier 1, 11.22% tier 1, 13.27% total risk-based capital, and 8.66% leverage. The Bank was categorized as well capitalized.
- Common dividends were $0.68 per share for the year. The company repurchased $67.1 million of shares under its authorization in 2019; total share repurchases including stock-plan tax withholding were $75.2 million.
Material changes versus the prior comparable period
- Net interest income fell 7.1% and net interest margin declined 23 basis points. Interest income rose 6.8%, but interest expense increased 28.7%, mainly as deposit costs rose and CD balances expanded. Management reported that both net interest income and margin increased in Q4 versus Q3, with Q4 margin up five basis points to 2.04%.
- Non-interest expense fell $35.4 million, or 6.5%, reflecting cost reductions. 2019 expenses included $10.4 million of severance and branch-rationalization costs.
- Net income declined 6.5%; diluted EPS fell from $0.79 to $0.77. Non-interest income fell $7.3 million, including the absence of $20.3 million of wealth-management revenue reported in 2018; partly offsetting this were $7.7 million of securities gains and a $7.9 million branch sale-leaseback gain in 2019.
- Deposits rose 2.9%, with CDs up $2.0 billion. Brokered deposits increased to $5.2 billion from $4.0 billion; wholesale borrowings rose 2.6% to $13.9 billion.
- Nonperforming assets increased 30.6% to $73.5 million, driven primarily by a CRE loan newly placed on nonaccrual. The allowance-to-nonperforming-loans ratio declined from 351.2% to 241.1%.
Outlook, risks, contingencies and unusual items
- CECL: The company adopted the expected-credit-loss standard on January 1, 2020 and estimated that the opening allowance could increase by no more than 20%, reducing opening stockholders’ equity. Final model assumptions and implementation work were still underway at filing.
- Rent regulation: New York’s 2019 Housing Stability and Tenant Protection Act restricts rent increases and deregulation. At year-end, $18.7 billion, or 60.0%, of multifamily loans were secured by New York State properties subject to the new laws. Management said the full effect was not yet measurable.
- Rate and funding risk: The filing identifies interest-rate changes, deposit competition, wholesale funding availability, and the LIBOR transition after 2021 as material risks. The one-year interest-rate gap was negative 12.31%; modeled next-12-month net interest income declined 1.94% under a 100-basis-point rate increase and rose 2.52% under a 100-basis-point decrease.
- Concentration and credit risk: Multifamily and CRE represented 91.4% of total loans. Most multifamily and CRE collateral was in the New York metropolitan area, exposing results to local property conditions and regulatory changes. Taxi-medallion loans remained a credit issue: $55.0 million outstanding, $30.4 million nonaccrual, and $10.2 million of 2019 charge-offs.
- Liquidity and commitments: CDs totaled $14.2 billion, of which $13.3 billion matured or repriced within one year. Loan commitments and letters of credit totaled $2.5 billion. Management expected available funding to cover obligations and commitments.
- The Board declared a $0.17-per-share quarterly common dividend in January 2020. The filing provides no broader earnings or financial guidance.
- Management reported no material legal proceedings; ordinary-course legal actions were considered immaterial in aggregate. The auditor issued unqualified opinions on the financial statements and internal control; the critical audit matter concerned estimating the allowance for commercial loans.
Important facts for investors to verify
- Confirm the intended issuer: the supplied filing is for New York Community Bancorp, Inc., not Flagstar Bank, National Association.
- Review the 2020 CECL adoption impact against the estimated allowance increase of up to 20% and the resulting opening-equity adjustment.
- Assess the effect of New York rent-law changes on collateral values, multifamily borrower cash flows, and loan underwriting.
- Track net interest margin recovery against deposit repricing, CD maturities, brokered-deposit growth, and wholesale funding costs.
- Monitor multifamily and CRE concentrations, nonperforming CRE loans, taxi-medallion exposures, and allowance coverage.
- Reconcile the filing’s different loan-balance presentations where relevant: gross held-for-investment loans were $41.8 billion, while the balance-sheet net loan figure was $41.7 billion.