Filing Summary: New York Community Bancorp, Inc. — Q3 2017
Entity mismatch: The request identifies Flagstar Bank, National Association, but the supplied filing is New York Community Bancorp, Inc.’s Form 10-Q for the quarter ended September 30, 2017. The figures below summarize the supplied filing, not a Flagstar filing.
Business context and reporting period
New York Community Bancorp is the holding company for New York Community Bank and New York Commercial Bank, with community and commercial banking operations concentrated in the New York region and branches in several other states. The company reported Q3 and nine-month results through September 30, 2017. During the quarter it completed the sale of its mortgage banking business and had already sold its FDIC-covered loan portfolio.
Financial results and key metrics
| Metric | Q3 2017 | Q3 2016 | Nine months 2017 | Nine months 2016 |
|---|---|---|---|---|
| Net interest income | $276.3 million | $318.4 million | $859.0 million | $971.9 million |
| Net interest margin | 2.53% | 2.91% | 2.63% | 2.95% |
| Provision for non-covered loan losses | $44.6 million | $1.2 million | $58.0 million | $6.7 million |
| Net income | $110.5 million | $125.3 million | $329.7 million | $381.7 million |
| Net income available to common shareholders | $102.3 million | $125.3 million | $313.3 million | $381.7 million |
| Diluted EPS | $0.21 | $0.26 | $0.64 | $0.78 |
- Revenue and earnings drivers: Q3 non-interest income was $108.9 million, including $82.0 million in gains on the sales of covered loans and mortgage banking operations. Nine-month non-interest income was $191.5 million, up from $113.2 million, also reflecting a $28.9 million securities-sale gain.
- Expenses and margins: Q3 non-interest expense was $162.2 million. Higher deposit funding costs and lower net interest income pressured earnings; management attributed the margin decline partly to higher short-term rates and the investment of sale proceeds in lower-yielding assets. Nine-month net interest income declined $112.8 million year over year.
- Assets and funding at September 30: Total assets were $48.46 billion; net loans $37.45 billion; securities $3.03 billion; deposits $28.89 billion; total borrowed funds $12.36 billion; and stockholders’ equity $6.76 billion. Deposits were broadly unchanged from year-end 2016, while borrowed funds declined $1.31 billion.
- Cash flow, nine months: Operating activities provided $1.31 billion, investing activities provided $2.48 billion, and financing activities used $1.08 billion. Cash and cash equivalents increased $2.72 billion to $3.28 billion.
- Liquidity and capital: The company reported $7.5 billion of available FHLB-NY borrowing capacity and no borrowings against its Federal Reserve discount-window lines. Consolidated regulatory ratios were 11.54% common equity tier 1, 13.06% tier 1, 14.59% total risk-based capital, and 9.40% leverage. Tangible common equity to tangible assets was 8.30%.
Material changes versus comparable periods
- Q3 net income available to common shareholders fell to $102.3 million from $125.3 million a year earlier; nine-month common earnings declined to $313.3 million from $381.7 million.
- Net interest margin narrowed by 38 basis points year over year in Q3 and 32 basis points over the nine-month period. Funding costs rose as rates increased, while interest income and prepayment income were lower over the nine-month comparison.
- Q3 provision for loan losses rose sharply to $44.6 million. Nine-month net charge-offs were $57.4 million, of which $54.8 million related to taxi medallion loans.
- Non-covered loans held for investment reached $37.5 billion, up $255.2 million from June 30 and $123.5 million from year-end. Multi-family loans were 72.4% of that portfolio.
- Cash and cash equivalents rose substantially, largely reflecting proceeds from portfolio and business sales. Securities classification changed after the company transferred its remaining held-to-maturity portfolio to available-for-sale.
Outlook, commentary, risks, and unusual items
- Portfolio and business sales: The company sold its FDIC-covered residential loan assets in July for approximately $1.9 billion of proceeds from Cerberus and the FDIC, recognizing a $74.6 million gain. It completed the mortgage banking business sale to Freedom Mortgage on September 29, receiving $226.6 million and recording a $7.4 million gain. The sale included a $20.5 billion mortgage servicing portfolio and related servicing assets. The FDIC loss-share agreement termination became effective October 31, 2017.
- Credit risk: Non-performing non-covered loans were $69.0 million, or 0.18% of total non-covered loans; non-performing non-covered assets were $84.7 million, or 0.17% of non-covered assets. Taxi medallion exposure was $105.6 million, including $43.4 million of non-accrual loans. Q3 net charge-offs were $40.4 million, principally related to taxi medallions.
- Concentration: Multi-family, commercial real estate, and acquisition, development and construction loans equaled 739.9% of the banks’ total risk-based capital, below the 850% limit agreed with regulators. These portfolios have substantial geographic exposure to New York City; management cited adverse real estate, economic, and collateral conditions as risks.
- Interest-rate sensitivity: Management estimated that an immediate 100-basis-point rate increase would reduce next-12-month net interest income by 2.34% and net portfolio value by 2.54%; a 200-basis-point increase was estimated to reduce net interest income by 5.72% and net portfolio value by 8.93%. These are model estimates subject to assumptions about repricing, prepayments, and deposit behavior.
- Liquidity and refinancing: Certificates of deposit totaling $8.1 billion were due within one year. Management noted that deposit retention and access to wholesale funding depend on pricing, competition, collateral availability, and funding conditions.
- Guidance: The supplied filing does not provide a numerical earnings or revenue forecast. Management described plans to focus on core banking, resume loan growth, and redeploy sale proceeds into higher-earning assets, while cautioning that results are exposed to interest rates, credit conditions, real estate markets, regulation, and other risks.
- Other items: The company issued $502.8 million of Series A preferred stock in March 2017. It declared a common dividend of $0.17 per share on October 24, payable November 21, 2017. Management reported effective disclosure controls and no material change in internal control over financial reporting; legal proceedings were described as immaterial in aggregate.
Most important facts for investors to verify
- Confirm the intended issuer: the supplied document is NYCB’s filing, not a Flagstar Bank, N.A. filing.
- Review the recurring earnings trend apart from the $82.0 million Q3 sale-related gain and the $28.9 million nine-month securities gain.
- Track taxi medallion exposures, charge-offs, non-accrual balances, and the adequacy of the $158.9 million non-covered loan allowance.
- Assess whether renewed multi-family and CRE loan growth can offset higher funding costs and continued net interest margin pressure.
- Verify the effects of the mortgage banking and covered-loan exits on ongoing revenue, liquidity, asset composition, and future operating costs.
- Monitor the 739.9% CRE concentration measure, deposit maturities, and the assumptions underlying interest-rate sensitivity estimates.