Filing summary: New York Community Bancorp, Inc. (not Flagstar Bank, National Association)
Entity note: The supplied filing is NYCB’s Form 10-Q, not a filing by Flagstar Bank, National Association. It reports the quarter ended September 30, 2016; amounts below are in U.S. dollars.
Business context and reporting period
New York Community Bancorp, Inc. is a bank holding company operating New York Community Bank and New York Commercial Bank. Its businesses include community and commercial banking and residential mortgage banking. The loan portfolio is concentrated in multifamily and commercial real estate, particularly in the New York area. The filing covers the three and nine months ended September 30, 2016, with balance-sheet comparisons to December 31, 2015.
Financial performance and position
| Metric | Q3 2016 | Comparison / period-end |
|---|---|---|
| Net interest income | $318.4 million | Up $39.0 million year over year; down $7.2 million sequentially |
| Net interest margin | 2.91% | 2.56% a year earlier; 2.99% in Q2 2016 |
| Non-interest income | $40.6 million | $37.6 million a year earlier |
| Non-interest expense | $161.7 million | $147.3 million a year earlier |
| Net income / diluted EPS | $125.3 million / $0.26 | Net income was $114.7 million a year earlier; diluted EPS was $0.26 in both periods |
| Net income, nine months | $381.7 million | $357.7 million in 2015; diluted EPS was $0.78 versus $0.80 |
- For the first nine months, net interest income increased to $971.9 million from $857.3 million, and net interest margin rose to 2.95% from 2.63%. Management attributed the improvement mainly to the late-2015 refinancing of $10.4 billion of wholesale borrowings, lowering their average cost.
- Nine-month non-interest income declined to $113.2 million from $151.7 million, including lower mortgage banking and other income. Non-interest expense increased to $481.0 million from $456.1 million, with higher FDIC insurance premiums, professional fees, compensation, and merger costs.
- At September 30, assets were $49.46 billion, loans net were $39.67 billion, deposits were $29.14 billion, borrowed funds were $14.00 billion, and stockholders’ equity was $6.09 billion. Versus year-end 2015, assets declined $855 million, loans net increased $1.66 billion, deposits increased $713 million, and borrowed funds declined $1.75 billion.
- Cash and cash equivalents were $771.8 million. Nine-month operating cash flow was $395.8 million, investing cash flow provided $1.13 billion, and financing activities used $1.29 billion. Cash increased $234.1 million from year-end.
- The allowance for losses on non-covered loans was $154.7 million, or 0.41% of those loans. Non-performing non-covered assets were $56.0 million, 0.12% of non-covered assets. Total non-performing assets, including covered assets, were $207.8 million, or 0.42% of total assets.
- Consolidated regulatory capital ratios were 10.25% Common Equity Tier 1, 10.25% Tier 1, 11.72% total risk-based capital, and 7.95% leverage. Both bank subsidiaries exceeded the stated minimums to be categorized as well capitalized.
Material changes and notable items
- Non-covered loans held for investment grew $1.6 billion from year-end, with multifamily loans comprising 72.5% of that portfolio. Multifamily and CRE originations were lower year over year, and the company sold loan participations to manage asset growth.
- Non-covered loans 30–89 days past due rose to $26.6 million from $6.6 million at year-end. Management linked much of the increase to a $6.2 million ADC loan and $15.7 million in New York City taxi-medallion loans. Non-accrual other loans increased, largely reflecting taxi-medallion credits.
- The mortgage servicing rights balance fell to $197.2 million from $247.7 million at year-end. Nine-month residential MSR fair-value changes included an $83.2 million loss, reflecting interest-rate, model-assumption, and loan-payoff effects; the company uses derivatives to mitigate, but not eliminate, related volatility.
- Held-to-maturity securities declined to $3.65 billion from $5.97 billion, largely due to calls and repayments. The portfolio’s disclosed fair value exceeded carrying value at September 30.
- Tangible equity to tangible assets was 7.77%, up from 7.30% at year-end; tangible book value per share was $7.50 versus $7.21. These are non-GAAP measures.
- The board declared a $0.17 per-share quarterly dividend on October 25, 2016. The filing reports $0.51 per share in dividends paid during the first nine months.
Outlook, risks, contingencies, and unusual items
- No quantitative earnings or operating guidance is provided. Management described lower loan prepayment income sequentially as a factor in the Q3 decline in net interest income and margin.
- Interest-rate exposure is material: the one-year interest-rate gap was negative 20.41%. The company estimated that an immediate 100-basis-point rise would reduce next-12-month net interest income by 3.88% and reduce net portfolio value by 7.51%; these are model estimates dependent on assumptions.
- Liquidity sources included $7.7 billion of available FHLB borrowing capacity, $1.3 billion of Community Bank discount-window capacity, and $130.5 million for the Commercial Bank. The filing notes that $7.0 billion of CDs matured within one year, creating renewal and funding risk.
- The proposed Astoria Financial merger remained uncertain. On November 9, 2016, the company said it did not expect required regulatory approvals by the December 31, 2016 termination date. Any extension required agreement by both boards; there was no assurance it would occur or that approvals would be obtained. Merger-related expenses were $2.2 million in Q3 and $4.7 million for the nine months.
- Shareholder lawsuits challenging the Astoria transaction were subject to a proposed settlement in principle, requiring definitive documentation and court approval; the company said the claims were without merit. Other ordinary-course legal matters were described as immaterial in aggregate.
- Key stated risks include concentration in New York real estate, economic and property-value changes, interest rates and prepayments, credit quality, deposit flows and wholesale funding access, mortgage repurchase representations and warranties, regulatory approvals, and execution of the proposed merger.
Most important facts for an investor to verify
- Confirm the issuer: this is a New York Community Bancorp, Inc. filing, not a Flagstar Bank filing.
- Check subsequent developments in the Astoria merger, including extension or termination of the agreement and regulatory status.
- Review the rise in 30–89-day delinquencies and performance of taxi-medallion and ADC exposures, alongside the allowance and non-performing asset trends.
- Assess whether refinancing-related funding savings can persist as deposits reprice and as the company manages its negative one-year gap and modeled rate sensitivity.
- Examine MSR valuation assumptions, hedging results, and the effect of mortgage prepayments on mortgage banking earnings.
- Verify deposit retention and liquidity, particularly renewal of near-term-maturing CDs and availability of wholesale funding.