Filing identity and reporting period
Important identification note: The supplied filing text is New York Community Bancorp, Inc.’s consolidated Form 10-Q for the quarter ended March 31, 2016—not a filing by Flagstar Bank, National Association. The summary below reflects the filing text provided.
New York Community Bancorp, Inc. is a bank holding company whose principal subsidiaries are New York Community Bank and New York Commercial Bank. Its activities include community and commercial banking and residential mortgage banking.
Financial performance and condition
- Earnings: Net income was $129.9 million, up from $119.3 million in Q1 2015. Diluted EPS was $0.27, unchanged year over year. Income before taxes was $204.8 million; income tax expense was $74.9 million.
- Interest income and margins: Net interest income increased to $327.9 million from $292.8 million, while net interest margin rose to 2.94% from 2.68%. Total interest income declined to $423.8 million from $428.9 million; interest expense fell to $95.9 million from $136.1 million. Management attributed much of the improvement to refinancing wholesale borrowings in Q4 2015 at a lower cost. Prepayment income declined year over year to $23.7 million from $34.3 million.
- Non-interest items and expenses: Non-interest income decreased to $35.2 million from $52.2 million, largely reflecting mortgage banking income of $4.1 million versus $18.4 million, including a $9.5 million mortgage-servicing loss. Non-interest expense was $158.4 million, compared with $156.8 million; Q1 2016 included $1.2 million of merger-related expenses.
- Assets and lending: Total assets were $48.5 billion at March 31, down $1.8 billion from year-end 2015. Net loans were $38.5 billion, up $441.9 million from year-end. Non-covered loans held for investment were $36.2 billion, with multifamily loans representing 73.0% of that portfolio.
- Deposits, borrowings, and liquidity: Deposits increased $555.6 million to $29.0 billion. Total borrowed funds declined $2.4 billion to $13.3 billion, primarily as securities repayment proceeds were used to reduce short-term FHLB advances. Cash and cash equivalents were $650.9 million. The company reported $7.8 billion of available FHLB borrowing capacity and no borrowings from its Federal Reserve discount-window lines.
- Cash flow: Operating activities provided $311.7 million, investing activities provided $1.7 billion, and financing activities used $1.9 billion. Cash increased $113.2 million to $650.9 million during the quarter.
- Capital: Stockholders’ equity was $6.0 billion, or 12.34% of total assets. The company reported a 7.70% tangible-equity-to-tangible-assets ratio (a non-GAAP measure). Consolidated regulatory capital ratios exceeded stated minimum capital-adequacy requirements; total risk-based capital was 12.05% and leverage capital was 7.60%.
Material changes versus comparable periods
- Year over year, net interest income rose $35.1 million and net interest margin increased 26 basis points, chiefly reflecting lower borrowing costs following the Q4 2015 debt repositioning. The company cautioned that Q4 2015 comparisons are distorted by a $915.0 million pretax debt-repositioning charge, including $773.8 million recorded as interest expense.
- Non-interest income fell $17.0 million year over year, principally due to weaker mortgage banking income and MSR valuation effects. Mortgage banking income included a $5.9 million reversal of the mortgage-loan representation-and-warranty reserve.
- Compared with December 31, 2015, securities declined $2.0 billion to $4.2 billion, mainly due to repayments; loans increased $441.9 million; deposits rose $555.6 million; and borrowings fell $2.4 billion. Total assets declined $1.8 billion.
- Non-performing non-covered assets increased to $64.6 million from $60.9 million, or 0.14% of non-covered assets versus 0.13%. The allowance for non-covered loan losses was $150.8 million; the quarter included $933,000 of net recoveries and a $2.7 million provision.
Outlook, management commentary, risks, and unusual items
- Outlook: No specific earnings or revenue guidance is provided in the supplied text. Management said the decline in assets meant it no longer expected to cross the SIFI threshold in Q2 2016; it had been managing asset growth to remain below that threshold through at least Q1 2016.
- Interest-rate exposure: The one-year interest-rate sensitivity gap was negative 15.60%. Modeling estimated that a 100-basis-point rate increase would reduce next-12-month net interest income by 3.70% and net portfolio value by 4.41%; a 200-basis-point increase was estimated to reduce them by 6.51% and 9.38%, respectively. These are model estimates dependent on assumptions, not forecasts.
- Portfolio and market risks: Multifamily and commercial real estate lending is concentrated in New York markets and depends on property income, values, occupancy, and local economic conditions. Management also identified risks from interest-rate and prepayment changes, credit deterioration, deposit flows, wholesale funding access, regulatory changes, and operational or technology disruptions. Non-accrual other loans rose, primarily due to taxi medallion loans.
- Merger and litigation: Shareholders approved the proposed Astoria Financial merger on April 26, 2016, but regulatory approval and other closing conditions remained outstanding. Merger-related shareholder lawsuits were subject to an agreement in principle to settle the New York action, including supplemental disclosures; settlement remained subject to definitive documentation, court approval, and completion of the merger. The company intended to defend the Delaware action.
- Dividends and accounting: The board declared a $0.17-per-share dividend payable May 17, 2016. The filing states that dividends over the next two quarters would require regulatory clearance because of the Q4 2015 debt-repositioning charge. The company adopted ASU 2016-09 in Q1, with an immaterial opening-equity adjustment and an immaterial tax benefit.
Most important facts for investors to verify
- Confirm the issuer: the filing supplied is for New York Community Bancorp, Inc., not Flagstar Bank, National Association.
- Review whether the Astoria merger obtained regulatory approval and closed, and how merger integration, costs, and litigation resolution developed.
- Assess the sustainability of improved net interest income after the one-time benefit of refinancing borrowings, including sensitivity to rates and lower prepayment income.
- Track MSR valuation assumptions and mortgage banking results, given the $9.5 million servicing loss and material decline in mortgage banking income.
- Monitor New York real-estate concentrations, taxi-medallion exposure, non-performing loans, TDRs, and allowance adequacy.
- Verify deposit composition and maturities, including $6.2 billion of CDs due within one year, wholesale-funding needs, and regulatory constraints on dividends.