Flagstar Bank, N.A. / New York Community Bancorp, Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024. The registrant is New York Community Bancorp, Inc. (NYCB); Flagstar Bank, N.A. is its consolidated bank subsidiary. Figures below are generally for the consolidated company.
Financial performance and position
| Metric | Q1 2024 | Comparison / context |
|---|---|---|
| Net loss | $327 million; common-shareholder loss $335 million, or $0.45 per diluted share | Net income was $2.006 billion in Q1 2023, including a $2.001 billion Signature transaction bargain purchase gain. Q4 2023 net loss was $2.7 billion, including $2.426 billion of goodwill impairment. |
| Net interest income / margin | $624 million / 2.28% | NII rose 12.4% year over year but fell 15.7% from Q4 2023; margin declined 32 basis points year over year and 54 basis points quarter over quarter. |
| Credit provision / charge-offs | Provision $315 million; net charge-offs $81 million, or 0.10% of average loans (not annualized) | Provision was $170 million in Q1 2023 and $552 million in Q4 2023. Allowance for loan losses rose to $1.215 billion from $992 million. |
| Non-interest income / expense | Income $9 million; expense $699 million | Income included a $121 million reduction to the Signature bargain purchase gain. Expense included $43 million of merger-related and restructuring costs; no goodwill impairment was recorded in Q1. |
| Balance sheet | Assets $112.9 billion; loans held for investment $82.3 billion; deposits $74.9 billion; borrowed funds $26.7 billion | Since December 31, 2023, assets fell $1.2 billion, loans fell $2.3 billion, deposits fell $6.7 billion, and borrowed funds rose $5.5 billion. |
| Liquidity / capital | Cash and cash equivalents $12.9 billion; reported total liquidity $33.3 billion. Company CET1 ratio 9.45%; Bank CET1 ratio 11.08%. | Reported liquidity exceeded $14.8 billion of uninsured deposits by $18.5 billion. Capital ratios exceeded stated minimums; the Bank also met “well capitalized” thresholds. |
| Cash flow | Operating cash flow used $294 million; investing activities provided $1.960 billion; financing activities used $247 million. | Cash, cash equivalents and restricted cash increased $1.419 billion during the quarter. |
Material changes and business developments
- Following credit-rating downgrades in February and March, the company reported $9.7 billion of core deposit runoff through March 7 and a $14.5 billion decline in uninsured retail deposits during the quarter. Deposits stabilized after the March capital raise, according to management.
- The March 2024 capital raise totaled approximately $1.05 billion, comprising common stock, convertible preferred stock and warrants. The preferred shares and warrants may result in substantial future common-stock dilution, subject to their terms and required shareholder approvals.
- Funding shifted toward higher-cost sources: brokered deposits were $12.9 billion, wholesale borrowings were $25.7 billion, and certificates of deposit were $26.8 billion at quarter-end. The average cost of interest-bearing liabilities rose to 4.19%, from 2.77% a year earlier.
- Loans held for investment contracted, partly reflecting the sale of the marine and RV portfolio and runoff or lower originations in other portfolios. Total loan originations were $4.745 billion, down from $7.505 billion in Q4 2023.
- Multi-family loans were $36.9 billion (44.8% of held-for-investment loans); CRE loans were $10.3 billion (12.5%). Approximately $3.1 billion of CRE loans were secured by office properties. The company downgraded $2.3 billion of loans to substandard or worse following a review of its largest 350 real estate loans.
- Non-performing loans rose to $798 million from $428 million at year-end; non-performing assets reached $811 million. The increase was principally associated with two CRE office loans and two multi-family loans. Allowance coverage of non-performing loans declined to 152% from 232%.
Outlook, risks and unusual items
- The filing provides no specific earnings or revenue guidance. Management said it expects to reduce CRE concentration, diversify the loan portfolio and improve earnings and profitability, but cautioned that execution may take time and may not achieve anticipated benefits.
- Management expects no material dividends from the Bank to the parent in the near future until repeatable operating income is achieved. Common dividends were reduced to $0.01 per share; regulatory restrictions and approvals also affect the Bank’s ability to pay dividends upstream.
- Management cited higher-for-longer interest rates, inflation in property operating costs, rent regulation and limits on rent increases as pressures on some multi-family borrowers’ debt coverage. Office occupancy and property values remain a concern. Further credit deterioration could increase provisions and losses.
- Management reported $33.3 billion of total liquidity at March 31 and stated it believed liquidity and capital were sufficient for obligations over the next 12 months. The filing also reports a $4 billion draw on the Federal Reserve discount-window line in April 2024. Another passage gives total liquidity of $28.6 billion; the filing text does not clearly reconcile the two figures.
- After quarter-end, the company terminated derivatives designated in cash-flow or fair-value hedges, stating this reduced asset sensitivity and moved the balance sheet toward a relatively neutral interest-rate position. Management said the termination had no immediate earnings impact.
- Disclosure controls and procedures were deemed ineffective at March 31 due to material weaknesses in the control environment, risk assessment, monitoring and loan-review controls. Management said remediation is underway; financial statements were assessed as fairly presented after additional procedures.
- The filing identifies liquidity, credit and CRE concentration, regulatory, operational, management-transition and litigation risks. It notes stockholder class and derivative actions and potential regulatory scrutiny, including matters related to the capital raise and prior disclosures.
Most important facts for investors to verify
- Whether deposits remain stable after the reported runoff, and how deposit mix and funding costs affect net interest margin.
- Subsequent CRE and multi-family credit performance, collateral valuations, loan downgrades, non-performing loans and allowance adequacy.
- The composition and availability of liquidity, including the discrepancy between the filing’s $33.3 billion and $28.6 billion liquidity figures and the April discount-window borrowing.
- Progress remediating material weaknesses in loan review and financial reporting controls, and any related regulatory developments.
- Capital-raise conversion and warrant terms, required shareholder approvals, dilution, regulatory capital impacts and dividend restrictions.
- Execution of the portfolio-diversification and cost/earnings plans, and the financial effect of discontinued FDIC servicing income and higher funding costs.