Business context and reporting period
This is New York Community Bancorp, Inc.’s Form 10-Q for the quarter ended June 30, 2021—not a filing by Flagstar Bank, National Association. NYCB is the parent of New York Community Bank, with 236 branches. It reported a proposed all-stock acquisition of Flagstar Bancorp, Inc.; Flagstar shareholders were to receive 4.0151 NYCB shares per share.
Financial performance and condition
| Metric | Q2 2021 / June 30, 2021 | Comparable period / change |
|---|---|---|
| Net income | $152 million; diluted EPS $0.30 | Up 45% from $105 million; EPS up from $0.21 |
| Net income available to common shareholders | $144 million | Up 48% from $97 million |
| Net interest income | $331 million | Up 24% from $266 million |
| Net interest margin | 2.50% | Up 32 basis points year over year |
| Total revenue | $347 million | Up 23% from $281 million |
| Efficiency ratio | 37% | Improved from 44% |
| Total assets | $57.5 billion | Up from $56.3 billion at year-end 2020 |
| Loans held for investment | $43.6 billion | Up $691 million from year-end; multi-family loans were 75% of the portfolio |
| Deposits | $34.2 billion | Up $1.7 billion from year-end and $2.4 billion year over year |
| Borrowed funds | $15.5 billion | Down $625 million from year-end |
| Allowance for loan and lease losses | $202 million; 0.46% of loans | Up $8 million from year-end; six-month provision was zero |
| Non-performing assets | $40 million; 0.07% of assets | Down from $46 million at year-end |
For the six months ended June 30, net income was $297 million versus $205 million, net interest income was $649 million versus $510 million, and diluted EPS was $0.60 versus $0.40. Net cash from operating activities was $14 million; investing activities used $802 million; financing activities provided $926 million. Cash and cash equivalents ended the period at $2.1 billion.
At June 30, stockholders’ equity was $6.9 billion. Tangible common equity to tangible assets was 7.24%; the Bank’s total risk-based capital ratio was 12.71%, above the stated 10.00% well-capitalized threshold. Liquidity included $7.6 billion of available FHLB borrowing capacity and $4.7 billion of unencumbered available-for-sale securities.
Material changes and management commentary
- Lower deposit and borrowing costs drove the improvement in net interest income: Q2 interest expense fell 36% year over year to $100 million. Deposit cost declined to 0.38% from 1.16%.
- Q2 loan originations for investment were $3.1 billion, up 21% from Q1 but down 7% year over year. Average non-interest-bearing deposits rose sharply, partly reflecting Economic Impact Payment-related deposits through a technology partner; management said these short-term balances peaked in Q2 and are expected to run off over the following year.
- Credit performance remained comparatively sound: six-month net recoveries were $7 million versus net charge-offs of $14 million in the prior-year period. However, loans 30–89 days past due increased to $35 million from $16 million at year-end.
- The allowance estimate reflected loan growth, forecast property-value declines in the New York City area, and the risk of a more severe or prolonged downturn. Management’s forecast assumed GDP growth of 6.9% in the second half of 2021 and unemployment returning to about 3.5% in 2023.
- Q2 and first-half results included $10 million of merger-related expenses. The New York State tax-rate increase also caused a one-time deferred-tax revaluation expense; the filing cites $2 million.
Outlook, risks and contingencies
The Flagstar transaction was valued at approximately $2.6 billion when announced. NYCB reported that both companies’ shareholders approved the transaction on August 4, 2021; closing was expected in Q4 2021, subject to regulatory approvals and other conditions. The filing estimated approximately $220 million of pre-tax one-time merger expenses. It cautioned that integration, cost savings, retention, regulatory conditions, and timing could differ from expectations. Merger-related lawsuits challenging disclosures were pending; NYCB said its claims were without merit.
Other material risks include concentration in New York-area multi-family and commercial real estate lending, rent regulation and property values, interest-rate and prepayment changes, deposit outflows, and COVID-19-related economic uncertainty. A 100-basis-point rate increase was estimated to reduce next-12-month net interest income by 1.24%; a 200-basis-point increase by 3.09%. Management reported a negative one-year interest-rate gap of 7.10% of assets. LIBOR-linked contracts and the transition away from LIBOR also require attention.
Most important facts for investors to verify
- Confirm the issuer: this 10-Q is NYCB’s, while Flagstar was the subject of a pending acquisition.
- Track regulatory approval, closing conditions, final merger consideration, integration costs, and realization of expected savings.
- Monitor the runoff of stimulus-related deposits and the bank’s funding mix, including brokered deposits and wholesale borrowings.
- Review asset quality and allowance trends, especially New York-area real estate exposures, loan deferrals, and past-due loans.
- Assess sensitivity to interest rates, prepayments, LIBOR transition, and securities valuation changes.