Business context and reporting period
This is New York Community Bancorp, Inc.’s consolidated Form 10-Q for the quarter ended March 31, 2023; Flagstar Bank, N.A. is its principal bank subsidiary. The quarter included a full quarter of Flagstar operations, following its December 2022 acquisition, and 12 days of operations after the March 20 Signature Bridge Bank transaction.
The Signature transaction transferred selected assets, deposits, branches and other liabilities to Flagstar from the FDIC. The filing reports preliminary acquisition accounting and says the final FDIC settlement remains under discussion.
Financial performance and condition
| Metric | Q1 2023 / March 31, 2023 | Comparison and context |
|---|---|---|
| Net income | $2.006 billion; diluted EPS $2.87 | Net income was $172 million and diluted EPS $0.30 in Q4 2022. Q1 included a $2.001 billion Signature bargain purchase gain. |
| Net interest income / margin | $555 million / 2.60% | Up $176 million and 32 basis points, respectively, from Q4 2022. Results reflect acquisition timing and higher asset yields, partly offset by rising funding costs. |
| Credit-loss provision | $170 million | Included a $132 million initial provision for acquired Signature loans, a $20 million provision and charge-off on a Signature-related bond, and other loan-related provision. |
| Non-interest income / expense | $2.098 billion / $476 million | Non-interest income included the bargain purchase gain. Expense included $67 million of merger-related and restructuring costs. |
| Total assets | $123.7 billion | Up from $90.1 billion at year-end, primarily due to Signature and organic loan growth. |
| Loans and leases | $82.5 billion held for investment; $83.3 billion net including loans held for sale | Held-for-investment loans rose from $69.0 billion at year-end. C&I loans reached $23.4 billion; multifamily loans were $38.0 billion, or 46% of the portfolio, versus 55% at year-end. |
| Deposits and funding | $84.8 billion in deposits; $21.4 billion in total borrowed funds, including $20.4 billion of wholesale borrowings | Deposits increased from $58.7 billion at year-end, principally due to Signature. Average cost of interest-bearing liabilities was 2.77%, up 65 basis points sequentially. |
| Liquidity | $22.3 billion cash and cash equivalents; $42 billion of stated ready liquidity | Ready liquidity includes cash, unpledged securities, and Fed Funds and FHLB borrowing capacity. Uninsured deposits were $29.2 billion, or 34% of total deposits. |
| Credit quality | $161 million non-performing loans; $174 million non-performing assets; $550 million loan ACL | NPLs and NPAs rose 14% from year-end. NPLs were 0.20% of loans; ACL was 341% of NPLs. Net charge-offs were zero for the quarter. |
| Capital | Consolidated CET1 9.28%; total risk-based capital 11.57%. Bank CET1 10.82%; total risk-based capital 11.38%. | The filing says capital exceeded minimum requirements; the Bank met the “well capitalized” criteria. |
| Cash flow | $3.035 billion operating cash flow; $25.105 billion investing cash inflow; $7.793 billion financing cash outflow | Cash, cash equivalents and restricted cash increased $20.347 billion, including cash acquired in Signature. Operating cash flow includes the reversal of the non-cash bargain purchase gain. |
Material changes versus comparable periods
- Year over year, net interest income increased $223 million to $555 million and net interest margin rose to 2.60% from 2.43%; acquired Flagstar operations and higher yields contributed, while deposit and borrowing costs rose substantially.
- Reported net income rose sharply, but the $2.001 billion Signature bargain purchase gain dominates the comparison. Excluding that item, the filing does not provide a single adjusted earnings figure in the text summarized here.
- The balance sheet expanded materially after the Signature transaction: deposits increased $26.1 billion and total assets increased $33.6 billion from December 31, 2022. Cash and cash equivalents rose from $2.0 billion to $22.3 billion.
- The loan mix shifted toward C&I: multifamily declined to 46% of held-for-investment loans from 55% at year-end, while C&I increased to 28% from 18%.
- Operating expenses and credit provisions also increased. Q1 non-interest expense was $476 million versus $141 million in Q1 2022; provision for credit losses was $170 million versus a $2 million benefit.
Outlook, commentary, risks and unusual items
- Management says the Signature transaction is expected to strengthen deposits and liquidity, lower the loan-to-deposit ratio, allow wholesale funding paydown, diversify lending away from CRE, and support earnings per share and tangible book value per share. These are expectations, not guarantees; the filing provides no quantified forward earnings guidance.
- The $2.001 billion bargain purchase gain and acquired asset and liability fair values are preliminary and may change during the one-year measurement period. The FDIC and Company had not finalized their settlement statement; a payment by either party may be due at settlement.
- The FDIC received 39.0 million NYCB shares under an equity appreciation instrument and was to use reasonable efforts to sell them over 40 days beginning April 28, 2023, creating potential share-supply and stock-price pressure.
- Deposit retention remains a key risk: uninsured deposits were 34% of deposits, and deposits declined in certain BaaS programs, including following a Circle reserve withdrawal. The Company said it no longer had a Circle deposit relationship or stablecoin/cryptocurrency-related deposits at quarter-end. A possible FDIC special assessment had not yet been specified.
- CRE and rent-regulated multifamily exposures are sensitive to property values, rental rules, refinancing conditions and interest rates. The filing identifies $3.4 billion of office CRE loans, with no delinquencies or non-performing loans in that office portfolio at quarter-end; this does not eliminate future credit risk.
- Interest-rate simulations estimate next-12-month net interest income changes of +4.9% under a 100-basis-point increase and -6.1% under a 100-basis-point decrease. Management cautions that model assumptions are uncertain and actual results may differ.
- The Board declared a $0.17 per-share common dividend on April 25, payable May 18, 2023. Bank dividends to the parent are subject to regulatory constraints, including transaction-related conditions.
- Management reported effective disclosure controls as of March 31, 2023. The filing says ordinary-course legal proceedings are believed immaterial and reports no defaults on senior securities.
Important facts for investors to verify
- Whether the FDIC settlement and final purchase accounting change the $2.001 billion gain, acquired asset values, or assumed liabilities.
- How Signature deposits, including uninsured balances, perform after acquisition and whether deposit outflows require more expensive funding.
- Underlying earnings and margins excluding the bargain purchase gain, acquisition timing effects, and merger-related costs.
- Credit performance and reserve adequacy as acquired loans season, with particular attention to CRE, office, multifamily and loans showing rising delinquency.
- Capital and liquidity after any wholesale funding changes, deposit repricing, FDIC assessments, and regulatory restrictions on dividends.
- The effect of the FDIC’s planned sale of its 39.0 million shares and any resulting dilution or market pressure.