Business context and reporting period
This is New York Community Bancorp, Inc.’s (NYCB) unaudited Form 10-Q for the three months ended March 31, 2020. NYCB is the holding company for New York Community Bank; the filing is not a filing by Flagstar Bank, National Association. NYCB reported 237 branches and a loan book concentrated in multifamily real estate, particularly in the New York metropolitan area.
Financial results and position
Unless otherwise indicated, amounts are in U.S. dollars; financial statement amounts are in millions.
| Metric | Q1 2020 / March 31, 2020 | Comparable period / prior year-end |
|---|---|---|
| Total assets | $54.3 billion | $53.6 billion at Dec. 31, 2019 |
| Loans held for investment, net | $42.1 billion | $41.7 billion at Dec. 31, 2019 |
| Deposits | $32.0 billion | $31.7 billion at Dec. 31, 2019 |
| Net interest income | $244.5 million | $241.3 million in Q1 2019 |
| Provision for credit losses | $20.6 million | $1.2 million recovery in Q1 2019 |
| Net income | $100.3 million | $97.6 million in Q1 2019 |
| Net income available to common shareholders | $92.1 million; diluted EPS $0.20 | $89.4 million; diluted EPS $0.19 in Q1 2019 |
| Net interest margin | 2.01% | 2.03% in Q1 2019; 2.04% in Q4 2019 |
| Non-interest income / expense | $16.9 million / $125.5 million | $24.8 million / $138.8 million in Q1 2019 |
| Cash and cash equivalents | $1.33 billion | $742 million at Dec. 31, 2019 |
| Total borrowed funds | $14.9 billion | $14.6 billion at Dec. 31, 2019 |
Net cash provided by operating activities was $130.7 million; investing activities used $104.3 million; financing activities provided $565.9 million. Cash increased $592.3 million during the quarter. NYCB reported $6.64 billion in stockholders’ equity. Common equity to assets was 11.31%; tangible common equity to tangible assets was 7.15%. Consolidated regulatory capital ratios were 9.81% CET1, 11.10% Tier 1, and 13.16% total risk-based capital. The Bank exceeded the regulatory thresholds for “Well Capitalized.”
Material changes versus comparable periods
- Net income rose approximately 3% year over year and diluted EPS increased from $0.19 to $0.20. Lower funding costs supported net interest income, which increased 1% year over year, despite lower interest income and asset yields.
- The reported NIM declined 2 basis points year over year. Excluding prepayment income, management’s non-GAAP adjusted NIM was 1.92%, down 3 basis points year over year but up 2 basis points sequentially. Prepayment income was $10.5 million versus $9.6 million in Q1 2019 and $17.9 million in Q4 2019.
- The credit-loss provision rose substantially, reflecting adoption of CECL and the worsened economic outlook associated with COVID-19. The loan allowance was $162.2 million, up from $147.6 million at year-end; net charge-offs were $10.2 million, including $6.7 million related to taxi medallions.
- Loans grew about $398 million from year-end, led by specialty finance and multifamily lending; securities declined about $398 million. Deposits increased $316 million and wholesale borrowings increased $375 million.
- Total non-performing assets fell to $58.8 million from $73.5 million at year-end. Non-performing loans were $49.3 million; non-performing assets were 0.11% of total assets. Taxi medallion-related loans remained a source of credit losses.
- Other comprehensive loss was $47.7 million, contributing to total comprehensive income of $52.6 million versus $128.3 million in Q1 2019. Non-interest income declined year over year, principally because securities gains were $0.5 million versus $7.0 million.
Outlook, commentary, risks, and unusual items
- COVID-19 and credit outlook: Management’s CECL forecast assumed a sharp GDP contraction in Q2 2020, a return to growth by year-end, and elevated unemployment through the forecast period. Management also considered the possibility of a deeper or longer downturn. Actual borrower performance, property values, and future credit provisions remain uncertain.
- Borrower relief: NYCB reported $4.83 billion of multifamily and CRE loans under payment deferral as of April 27, 2020, or 12.7% of those portfolios. The company offered residential mortgage customers 90-day forbearance and commercial borrowers case-by-case relief. As of March 31, it had not funded PPP loans; by May 5, it had funded or was processing about 1,200 requests totaling approximately $100 million.
- Operations: NYCB temporarily closed 74 locations, about 31% of its locations, while maintaining operations and shifting nearly all back-office employees to remote work. Management said it had not identified material pandemic-related operational or internal-control challenges at the reporting date.
- Liquidity: At March 31, NYCB reported $7.7 billion of available FHLB borrowing capacity, $4.0 billion of unencumbered available-for-sale securities, and $1.1 billion of potential Federal Reserve discount-window borrowing. No amounts were drawn against those lines at quarter-end. CDs totaling $13.7 billion, or 96.6% of CDs, matured within one year.
- Interest-rate exposure: The one-year interest-rate gap was negative 11.25% of assets. Management’s model estimated that a parallel 100-basis-point rate increase would reduce next-12-month net interest income by 1.94%; a 200-basis-point increase would reduce it by 3.91%. These are model estimates and depend on assumptions, including prepayments and deposit behavior.
- Accounting and unusual items: CECL adoption reduced retained earnings by $10.5 million after tax and added $12.5 million to the allowance for unfunded commitments. A $13.1 million tax benefit from CARES Act loss carryback provisions lowered the effective tax rate to 12.94%. Q1 expenses included a $4.4 million benefit related to lease termination; Q1 2019 included $9.0 million of severance and branch-rationalization costs. No goodwill impairment was identified at March 31, despite the pandemic assessment.
- Capital returns: The board declared a $0.17-per-share common dividend on April 28, payable May 19. The company repurchased $37.2 million of shares in Q1; $43.1 million remained under its $300 million authorization. Management cautioned that future dividends and capital actions depend on results, regulatory limits, and conditions.
- Other risks: Key exposures include COVID-19’s effect on loan repayment and collateral values, the concentration in New York multifamily and CRE lending, interest-rate and LIBOR transition risks, deposit competition and wholesale funding access, and regulatory and legal developments. Management described pending legal proceedings in the aggregate as immaterial. Disclosure controls were deemed effective.
Important facts for investors to verify
- Confirm the filing entity: this 10-Q is for New York Community Bancorp, Inc., not Flagstar Bank, National Association.
- Track subsequent loan-deferral levels, delinquency migration, CECL allowance changes, charge-offs, and taxi medallion exposure; Q1 results predate much of the pandemic’s economic impact.
- Assess the assumptions underlying the $4.83 billion of reported deferrals and whether borrowers resume contractual payments after relief ends.
- Monitor liquidity and funding costs, including CD renewals, brokered deposits, FHLB borrowing capacity, and the level of wholesale borrowings.
- Review the multifamily and CRE concentration, geographic exposure, property-level cash flows, and potential effects of rent regulation and declining real estate values.
- Reconcile reported earnings with the CECL provision, CARES Act tax benefit, securities gains, lease-termination benefit, and other non-recurring or non-GAAP adjustments.
- Check future capital ratios, dividends, and share repurchases against regulatory requirements and the effects of the economic downturn.