New York munity Bancorp(NYCB) - 2021 Q1 - Quarterly Report

Glossary List of Abbreviations and Acronyms Part I. Financial Information Item 1. Financial Statements This section presents the Company's unaudited consolidated financial statements, including Statements of Condition, Income, Equity Changes, and Cash Flows, with notes on accounting policies and financial instruments Consolidated Statements of Condition Consolidated Statements of Condition (in thousands) | Item | March 31, 2021 | December 31, 2020 | | :--------------------------------------- | :--------------- | :---------------- | | Total assets | $57,656,892 | $56,306,120 | | Total deposits | $34,197,136 | $32,436,813 | | Total borrowed funds | $15,758,787 | $16,083,544 | | Total stockholders' equity | $6,796,440 | $6,841,644 | Consolidated Statements of Income and Comprehensive Income Consolidated Statements of Income (in thousands, except per share data) | Item | 3 Months Ended March 31, 2021 | 3 Months Ended March 31, 2020 | | :--------------------------------------- | :---------------------------- | :---------------------------- | | Total interest income | $423,108 | $441,042 | | Total interest expense | $105,449 | $196,575 | | Net interest income | $317,659 | $244,467 | | Provision for credit losses | $3,569 | $20,601 | | Total non-interest income | $14,407 | $16,899 | | Total non-interest expense | $132,401 | $125,522 | | Net income | $145,596 | $100,328 | | Net income available to common shareholders | $137,389 | $92,121 | | Basic earnings per common share | $0.29 | $0.20 | | Diluted earnings per common share | $0.29 | $0.20 | Consolidated Statement of Changes in Stockholders' Equity Changes in Stockholders' Equity (in thousands) | Item | 3 Months Ended March 31, 2021 | 3 Months Ended March 31, 2020 | | :--------------------------------------- | :---------------------------- | :---------------------------- | | Balance at December 31 | $6,841,644 | $6,711,694 | | Net income | $145,596 | $100,328 | | Dividends paid on common stock | $(79,052) | $(79,332) | | Dividends paid on preferred stock | $(8,207) | $(8,207) | | Other comprehensive loss, net of tax | $(96,638) | $(47,722) | | Balance at March 31 | $6,796,440 | $6,637,385 | Consolidated Statements of Cash Flows Consolidated Statements of Cash Flows (in thousands) | Item | 3 Months Ended March 31, 2021 | 3 Months Ended March 31, 2020 | | :--------------------------------------- | :---------------------------- | :---------------------------- | | Net cash provided by operating activities | $123,614 | $130,696 | | Net cash used in investing activities | $(681,179) | $(104,296) | | Net cash provided by financing activities | $1,332,549 | $565,936 | | Net increase in cash, cash equivalents, and restricted cash | $774,984 | $592,336 | | Cash, cash equivalents, and restricted cash at end of period | $2,722,915 | $1,334,206 | Notes to the Consolidated Financial Statements Note 1. Organization, Basis of Presentation, and Impact of Recent Accounting Pronouncements - The Company adopted ASU No. 2016-13 (CECL) on January 1, 2020, leading to a $10.5 million net of tax decrease to retained earnings[62][64] - The Company adopted ASU No. 2020-04 (LIBOR reform) in Q1 2021, with no material impact on financial statements to date[61] - The adoption of ASU No. 2017-04 (Goodwill Impairment) did not materially affect financial statements, and no impairment was identified as of March 31, 2021[65][66] Note 2. Computation of Earnings per Common Share Earnings Per Common Share (in thousands, except per share amounts) | Item | 3 Months Ended March 31, 2021 | 3 Months Ended March 31, 2020 | | :--------------------------------------- | :---------------------------- | :---------------------------- | | Net income available to common shareholders | $137,389 | $92,121 | | Earnings applicable to common stock | $135,594 | $90,951 | | Weighted average common shares outstanding | 463,292,906 | 464,993,970 | | Basic earnings per common share | $0.29 | $0.20 | | Diluted earnings per common share | $0.29 | $0.20 | Note 3: Reclassifications out of Accumulated Other Comprehensive Loss Reclassifications out of Accumulated Other Comprehensive Loss (in thousands) | Item | 3 Months Ended March 31, 2021 | | :--------------------------------------- | :---------------------------- | | Unrealized gains (losses) on available-for-sale securities, net of tax | $0 | | Unrealized loss on cash flow hedges, net of tax | $(4,274) | | Amortization of defined benefit pension plan items, net of tax | $(1,219) | | Total reclassifications for the period | $(5,493) | Note 4. Securities Total Securities Portfolio (in thousands) | Item | March 31, 2021 | December 31, 2020 | | :--------------------------------------- | :--------------- | :---------------- | | Total debt securities available for sale (Fair Value) | $6,177,905 | $5,813,333 | | Total equity securities (Fair Value) | $15,801 | $31,576 | | Total securities (Fair Value) | $6,193,706 | $5,844,909 | | Gross Unrealized Gain (March 31, 2021) | $101,046 | | | Gross Unrealized Loss (March 31, 2021) | $150,361 | | - The Company held $699.0 million of FHLB-NY stock at cost as of March 31, 2021[75] - No allowance for credit losses was recorded for debt securities as of March 31, 2021, as unrealized losses stemmed from interest rate changes, not credit impairment[80][82] Note 5. Loans and Leases Loan Portfolio Composition (in thousands) | Loan Type | March 31, 2021 (Amount) | March 31, 2021 (Percent of Total) | December 31, 2020 (Amount) | December 31, 2020 (Percent of Total) | | :--------------------------------------- | :---------------------------- | :-------------------------------- | :---------------------------- | :-------------------------------- | | Multi-family | $32,195,256 | 74.77% | $32,236,385 | 75.28% | | Commercial real estate | $7,027,236 | 16.32% | $6,835,763 | 15.96% | | Commercial and industrial | $3,509,530 | 8.15% | $3,417,343 | 7.98% | | Total loans and leases held for investment | $43,061,670 | 100.00% | $42,821,790 | 100.00% | Loan Quality Indicators (in thousands) | Category | March 31, 2021 | December 31, 2020 | | :--------------------------------------- | :--------------- | :---------------- | | Total Past Due Loans | $53,523 | $53,443 | | Non-Accrual Loans | $33,178 | $37,785 | | Total TDRs | $32,198 | $34,285 | - The CARES Act allowed COVID-19 related loan modifications to avoid TDR classification under specific conditions, extended until December 31, 2021[111] Note 6. Allowance for Credit Losses on Loans and Leases Allowance for Credit Losses on Loans and Leases (in thousands) | Item | 3 Months Ended March 31, 2021 | 3 Months Ended March 31, 2020 | | :--------------------------------------- | :---------------------------- | :---------------------------- | | Balance, beginning of period | $194,043 | $147,638 | | Provision for credit losses | $3,198 | $22,891 | | Net recoveries (charge-offs) | $517 | $(10,196) | | Balance, end of period | $197,758 | $162,244 | - The ACL increased due to qualitative adjustments for COVID-19's impact on lending geography and portfolio, partially offset by macroeconomic forecast improvements[119] Nonaccrual Loans (in thousands) | Category | Recorded Investment (March 31, 2021) | Related Allowance (March 31, 2021) | | :--------------------------------------- | :----------------------------------- | :--------------------------------- | | Total nonaccrual loans | $33,178 | $904 | Note 7. Borrowed Funds Borrowed Funds (in thousands) | Item | March 31, 2021 | December 31, 2020 | | :--------------------------------------- | :--------------- | :---------------- | | FHLB advances | $14,302,661 | $14,627,661 | | Repurchase agreements | $800,000 | $800,000 | | Junior subordinated debentures | $360,362 | $360,259 | | Subordinated notes | $295,764 | $295,624 | | Total borrowed funds | $15,758,787 | $16,083,544 | - Subordinated notes include $300 million aggregate principal amount of 5.90% Fixed-to-Floating Rate Subordinated Notes due 2028[124][125] - Junior subordinated debentures totaling $360.4 million are held by unconsolidated statutory business trusts[126][128] Note 8. Pension and Other Post-Retirement Benefits Net Periodic (Credit) Expense (in thousands) | Item | 3 Months Ended March 31, 2021 | 3 Months Ended March 31, 2020 | | :--------------------------------------- | :---------------------------- | :---------------------------- | | Pension Benefits | $(1,372) | $(872) | | Post Retirement Benefits | $5 | $26 | - The Company expects to contribute $915,000 to its post-retirement plan in 2021 but no contributions to its pension plan[130] Note 9. Stock-Based Compensation Stock-Based Compensation Activity (3 Months Ended March 31, 2021) | Item | Number of Shares | Weighted Average Grant Date Fair Value | | :--------------------------------------- | :--------------- | :----------------------------------- | | Unvested restricted stock at beginning of year | 6,228,048 | $12.43 | | Granted | 3,029,949 | $11.15 | | Unvested restricted stock at end of period | 7,280,083 | $11.70 | - Compensation and benefits expense for restricted stock grants totaled $8.0 million in Q1 2021, and for PSUs, it was $586,000[132][134] - Unrecognized compensation cost for unvested restricted stock was $77.6 million (3.6 years remaining) and for PSUs was $6.3 million (2.1 years remaining) as of March 31, 2021[133][134] Note 10. Fair Value Measurements - The Company uses a three-tier fair value hierarchy: Level 1 (quoted prices), Level 2 (observable inputs), and Level 3 (significant unobservable inputs)[136][138] Total Securities Measured at Fair Value (in thousands) | Item | March 31, 2021 | December 31, 2020 | | :--------------------------------------- | :--------------- | :---------------- | | Total securities (Fair Value) | $6,193,706 | $5,844,909 | | Level 1 Securities | $64,998 | $80,478 | | Level 2 Securities | $6,128,708 | $5,764,431 | | Level 3 Securities | $0 | $0 | Assets Measured at Fair Value on a Non-Recurring Basis (Level 3, in thousands) | Item | March 31, 2021 | December 31, 2020 | | :--------------------------------------- | :--------------- | :---------------- | | Certain nonaccrual loans | $23,172 | $41,066 | | Other assets (repossessed assets, equity investments) | $10,583 | $5,655 | | Total | $33,755 | $46,721 | Note 11. Leases Net Investment in Direct Financing Leases (in thousands) | Item | March 31, 2021 | December 31, 2020 | | :--------------------------------------- | :--------------- | :---------------- | | Net investment in the lease - lease payments receivable | $1,929,213 | $1,771,097 | | Net investment in the lease - unguaranteed residual assets | $80,349 | $80,093 | | Total lease payments | $2,009,562 | $1,851,190 | Operating Lease Information (in thousands, except lease term and discount rate) | Item | March 31, 2021 | December 31, 2020 | | :--------------------------------------- | :--------------- | :---------------- | | Operating lease right-of-use assets | $262,196 | $266,864 | | Operating lease liabilities | $262,169 | $266,846 | | Weighted average remaining lease term | 16 years | 16 years | | Weighted average discount rate | 3.08% | 3.12% | Note 12. Derivative and Hedging Activities - The Company uses interest rate swaps to manage fair value exposure on fixed-rate assets (fair value hedges) and stabilize interest expense (cash flow hedges)[177][180][185] - All $4.3 billion notional derivative contracts were cleared on the LCH as of March 31, 2021[178] Derivative Financial Instruments (in thousands) | Item | Notional Amount (March 31, 2021) | | :--------------------------------------- | :------------------------------- | | Derivatives designated as fair value hedging instruments (Interest rate swap) | $2,000,000 | | Interest rate swaps designated as cash flow hedges | $2,250,000 | Note 13. Subsequent Event - On April 26, 2021, the Company announced a definitive merger agreement to acquire Flagstar Bancorp, Inc. in a 100% stock transaction valued at $2.6 billion[187] - Flagstar shareholders will receive 4.0151 shares of New York Community common stock for each Flagstar share[187] - The combined company is expected to have over $87 billion in total assets and operate nearly 400 branches in nine states, with closing anticipated in Q4 2021[187] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the Company's financial condition, operations, and cash flows for Q1 2021, covering executive summary, accounting policies, balance sheet, earnings, and risk management Cautionary Statement Regarding Forward-Looking Language - Forward-looking statements are subject to inherent uncertainties, and actual results may differ materially due to factors beyond the Company's control[192][193] - Key risk factors include economic conditions, interest rate changes, real estate values, regulatory focus on CRE, and integration challenges for acquisitions like Flagstar Bancorp, Inc[193] - The effects of COVID-19, including pandemic duration, vaccination program effectiveness, and government stimulus, are significant factors impacting operations[196] Reconciliations of Stockholders' Equity, Common Stockholders' Equity, and Tangible Common Stockholders' Equity; Total Assets and Tangible Assets; and the Related Measures - Tangible common stockholders' equity and tangible book value per common share are non-GAAP measures used to assess growth, dividends, and peer comparisons[202][204] Key Capital and Asset Measures (in thousands, except percentages) | Item | March 31, 2021 | Dec. 31, 2020 | March 31, 2020 | | :--------------------------------------- | :--------------- | :-------------- | :------------- | | Total Stockholders' Equity | $6,796,440 | $6,841,644 | $6,637,385 | | Tangible common stockholders' equity | $3,867,221 | $3,912,425 | $3,708,166 | | Total Assets | $57,656,892 | $56,306,120 | $54,261,093 | | Tangible Assets | $55,230,513 | $53,879,741 | $51,834,714 | | Book value per common share | $13.53 | $13.66 | $13.15 | | Tangible book value per common share | $8.32 | $8.43 | $7.95 | | Common stockholders' equity to total assets | 10.92% | 11.26% | 11.31% | | Tangible common stockholders' equity to tangible assets | 7.00% | 7.26% | 7.15% | Executive Summary - New York Community Bancorp, Inc. operates 237 branches through eight local divisions across New York, New Jersey, Ohio, Arizona, and Florida[206] Q1 2021 Financial Highlights (in millions, except per share data) | Item | Q1 2021 | Q1 2020 | YoY Change | | :--------------------------------------- | :------ | :------ | :--------- | | Total assets | $57,700 | $54,300 | +$3,400 | | Net income | $145.6 | $100.3 | +45% | | Net income available to common shareholders | $137.4 | $92.1 | +49% | | Diluted EPS | $0.29 | $0.20 | +45% | | Net interest income | $317.7 | $244.5 | +30% | | Net interest margin (NIM) | 2.48% | 2.01% | +47 bps | | Total deposits | $34,200 | $32,400 | +$1,800 | | Non-performing assets (NPAs) | $41.3 | $46.1 | -10% | | Efficiency ratio | 39.87% | 48.03% | -8.16 pp | - The Company announced the acquisition of Flagstar Bancorp, Inc. in an all-stock transaction valued at $2.6 billion, expected to close in Q4 2021[217][218] Critical Accounting Policies - The Company's critical accounting policies include determining the allowance for credit losses on loans and leases (ACL) and goodwill impairment[220] - The CECL methodology, adopted January 1, 2020, requires estimating expected credit losses over the contractual term, considering past events, current conditions, and reasonable forecasts[222][223] - Goodwill, totaling $2.4 billion, is tested for impairment annually, with no impairment identified as of March 31, 2021, despite COVID-19's impact[233][236] Balance Sheet Summary Balance Sheet Changes (in millions) | Item | March 31, 2021 | December 31, 2020 | | :--------------------------------------- | :--------------- | :---------------- | | Total assets | $57,700 | $56,300 | | Cash and cash equivalents | $2,700 | $1,900 | | Total securities | $6,200 | $5,800 | | Total loans and leases held for investment | $43,100 | $42,900 | | Total deposits | $34,200 | $32,400 | | Total borrowed funds | $15,800 | $16,100 | | Total stockholders' equity | $6,800 | $6,800 | - Non-interest bearing accounts rose $1.8 billion (58%) quarter-over-quarter, driven by new technology partner relationships for low-cost deposits, including Economic Impact Payments[241] Loans and Leases Loans and Leases Originated for Investment - Total loans and leases originated for investment in Q1 2021 were $2.54 billion, down 34% quarter-over-quarter and 7% year-over-year[247][248] - Multi-family loan originations decreased 47% quarter-over-quarter, CRE loan originations decreased 13%, and other C&I loan originations decreased 48%[247] - Specialty finance originations increased 21% quarter-over-quarter[247] Loans and Leases Held for Investment - Multi-family loans constitute 75% ($32.2 billion) of the total held-for-investment portfolio, primarily secured by rent-regulated apartment buildings in New York City[251][253] - CRE loans represent 16% ($7.0 billion) of the portfolio, secured by income-producing properties mainly in the New York City metro area[261][262] - Specialty finance loans and leases totaled $3.4 billion (7.9% of portfolio) at March 31, 2021, with no losses recorded since inception in Q3 2013[265][268] - The Company maintains conservative underwriting standards, including minimum DSCRs (120% for multi-family, 130% for CRE) and LTVs (up to 75% for multi-family, 65% for CRE)[302][303] Loans Held for Sale Loans Held for Sale (in millions) | Item | March 31, 2021 | December 31, 2020 | | :--------------------------------------- | :--------------- | :---------------- | | Loans held for sale | $141.4 | $117.1 | - The majority of loans held for sale are part of the Paycheck Protection Program (PPP)[276] Lending Authority - Loan approvals are governed by federal/state laws and internal committees, with larger loans requiring higher-level committee and Board approval[277][278][279] - The largest mortgage loan in the portfolio at March 31, 2021, was a $329.0 million multi-family loan in Brooklyn, New York, current since origination[280] Geographical Analysis of the Portfolio of Loans Held for Investment Geographical Distribution of Multi-Family and CRE Loans (March 31, 2021, in thousands) | Region | Multi-Family Loans (Amount) | Multi-Family Loans (Percent of Total) | CRE Loans (Amount) | CRE Loans (Percent of Total) | | :--------------------------------------- | :---------------------------- | :------------------------------------ | :----------------- | :--------------------------- | | Total New York City | $20,675,558 | 64.22% | $4,422,402 | 62.93% | | Total Metro New York | $25,371,512 | 78.81% | $5,992,780 | 85.28% | | Other New York State | $957,057 | 2.97% | $152,803 | 2.17% | | All other states | $5,866,687 | 18.22% | $881,653 | 12.55% | - The largest concentration of ADC loans ($98.5 million) and other held-for-investment loans are also located in Metro New York[282] Outstanding Loan Commitments Outstanding Loan Commitments (in millions) | Item | March 31, 2021 | December 31, 2020 | | :--------------------------------------- | :--------------- | :---------------- | | Total outstanding loan commitments | $2,800 | $2,500 | | Commitments to issue letters of credit | $288.6 | $375.9 | - Loan commitments include $1.5 billion for specialty finance and $620.6 million for other C&I loans[284] Asset Quality Asset Quality Metrics (in millions, except percentages) | Item | March 31, 2021 | December 31, 2020 | | :--------------------------------------- | :--------------- | :---------------- | | Non-Performing Assets (NPAs) | $41.3 | $46.1 | | NPAs to total assets | 0.07% | 0.08% | | Non-Performing Loans (NPLs) | $33.2 | $37.8 | | NPLs to total loans | 0.08% | 0.09% | | Repossessed assets | $8.2 | $8.3 | | Net recoveries (charge-offs) | $0.517 | $(10.2) | - Non-performing taxi medallion-related assets decreased by $10.2 million (41%) to $14.9 million[214][288] - The Company actively monitors non-accrual loans, orders updated appraisals for non-performing collateral, and pursues collection efforts through its Loan Workout Unit[293][294][295] Troubled Debt Restructurings - TDRs involve concessions to financially distressed borrowers, including rate reductions, maturity extensions, and forbearance agreements[313] Troubled Debt Restructurings (in millions) | Item | March 31, 2021 | December 31, 2020 | | :--------------------------------------- | :--------------- | :---------------- | | Total TDRs | $32.1 | $34.3 | | Non-accrual TDRs (taxi medallion-related) | $10.0 | $18.8 | - TDRs are generally placed on non-accrual status until future collection of principal and interest is reasonably assured, typically after six consecutive months of performance[315] Loan Deferrals - The CARES Act provided TDR relief for COVID-19 related loan modifications, extended until December 31, 2021[319][320] - As of March 31, 2021, 100% ($6.1 billion) of full-payment loan deferrals had returned to payment status[215][321] - Approximately $2.5 billion (6% of total loans) were in principal deferral (interest-only and escrow), with 84% scheduled to resume principal payments in Q2 2021[215][322] Principal Deferrals as of March 31, 2021 (in millions) | Loan Category | Amount in Deferral | Deferred as a % of Outstanding Balance | Weighted Average LTV | | :--------------------------------------- | :----------------- | :----------------------------------- | :------------------- | | Multi-family | $1,715 | 5.3% | 54.8% | | CRE | $800 | 11.4% | 54.2% | | Total Multi-Family and CRE | $2,515 | 6.4% | 54.6% | Asset Quality Analysis Allowance for Credit Losses on Loans and Leases (in thousands) | Item | 3 Months Ended March 31, 2021 | Year Ended December 31, 2020 | | :--------------------------------------- | :---------------------------- | :--------------------------- | | Balance at beginning of period | $194,043 | $147,638 | | Provision for credit losses | $3,198 | $63,279 | | Total charge-offs | $(4,324) | $(22,178) | | Total recoveries | $4,841 | $3,393 | | Net recoveries (charge-offs) | $517 | $(18,785) | | Balance at end of period | $197,758 | $194,043 | Asset Quality Measures (March 31, 2021 vs. December 31, 2020) | Item | March 31, 2021 | December 31, 2020 | | :--------------------------------------- | :--------------- | :---------------- | | Non-performing loans to total loans | 0.08% | 0.09% | | Non-performing assets to total assets | 0.07% | 0.08% | | Allowance for credit losses to non-performing loans | 596.05% | 513.55% | | Allowance for credit losses to total loans | 0.46% | 0.45% | Loans 30-89 Days Past Due (in thousands) | Loan Type | March 31, 2021 | December 31, 2020 | | :--------------------------------------- | :--------------- | :---------------- | | Multi-family | $961 | $4,091 | | Commercial real estate | $19,371 | $9,989 | | Total loans 30-89 days past due | $20,345 | $15,658 | Geographical Analysis of Non-Performing Loans Geographical Distribution of Non-Performing Loans (March 31, 2021, in thousands) | Region | Amount | | :--------------------------------------- | :------- | | New York | $30,350 | | New Jersey | $2,139 | | All other states | $689 | | Total non-performing loans | $33,178 | Securities Total Securities (in millions) | Item | March 31, 2021 | December 31, 2020 | | :--------------------------------------- | :--------------- | :---------------- | | Total securities | $6,200 | $5,800 | - Total securities increased by $348.8 million (24% annualized) to $6.2 billion at March 31, 2021, representing 10.7% of total assets[329] - Increased securities purchases were driven by higher long-term interest rates and a steeper yield curve during Q1 2021[329] Federal Home Loan Bank Stock FHLB-NY Stock (in millions) | Item | March 31, 2021 | December 31, 2020 | | :--------------------------------------- | :--------------- | :---------------- | | FHLB-NY stock, at cost | $699.0 | $714.0 | - Dividends from FHLB-NY totaled $8.5 million for the three months ended March 31, 2021, down from $9.7 million in the prior year[331] Bank-Owned Life Insurance Bank-Owned Life Insurance (in millions) | Item | March 31, 2021 | December 31, 2020 | | :--------------------------------------- | :--------------- | :---------------- | | BOLI investment | $1,200 | $1,198.4 | - Income generated by the increase in cash surrender value of BOLI policies is recorded in Non-Interest Income[332] Goodwill Goodwill (in millions) | Item | March 31, 2021 | December 31, 2020 | | :--------------------------------------- | :--------------- | :---------------- | | Goodwill | $2,400 | $2,400 | - Goodwill is tested at least annually for impairment, and no impairment was deemed likely as of March 31, 2021[333][236] Sources of Funds - Parent Company funding sources include dividends from the Bank, capital raised through stock issuance, and debt issuance[334] - Consolidated funding primarily stems from deposits, wholesale borrowings, and cash flows from loan and securities repayments/sales[335] Cash Flows from Loan and Securities Activities (in millions) | Item | 3 Months Ended March 31, 2021 | 3 Months Ended March 31, 2020 | | :--------------------------------------- | :---------------------------- | :---------------------------- | | Loan repayments and sales | $2,400 | $2,300 | | Cash flows from repayment and sales of securities | $495.3 | $798.1 | | Purchases of securities | $985.6 | $483.8 | Deposits Total Deposits (in millions) | Item | March 31, 2021 | December 31, 2020 | | :--------------------------------------- | :--------------- | :---------------- | | Total deposits | $34,200 | $32,400 | | Total deposits as % of total assets | 59.3% | 57.6% | | CDs as % of total deposits | 28.1% | 31.8% | - Non-interest-bearing checking accounts saw a $1.6 billion increase due to a new relationship with technology partners for low-cost deposits, including Economic Impact Payments[338] - Brokered deposits remained stable at $5.3 billion[339] Borrowed Funds Borrowed Funds (in millions) | Item | March 31, 2021 | December 31, 2020 | | :--------------------------------------- | :--------------- | :---------------- | | Total borrowed funds | $15,800 | $16,100 | | Total borrowed funds as % of total assets | 27.4% | 28.6% | | FHLB advances | $14,300 | $14,600 | - Subordinated notes totaled $295.8 million and junior subordinated debentures totaled $360.4 million, comparable to the prior quarter[341][342] Risk Definitions - Interest Rate Risk arises from timing differences in rate changes and cash flows, basis risk, yield curve risk, and embedded options[343] - Market Risk stems from changes in market factors (interest rates, liquidity, volatilities) affecting the value of traded instruments[344] - Liquidity Risk is the inability to meet obligations when due without incurring unacceptable losses, including managing unplanned funding decreases[345] Management of Market and Interest Rate Risk - The Company manages interest rate risk by emphasizing intermediate-term assets, originating floating-rate C&I loans, managing wholesale borrowings, and executing interest rate swaps[349] - The LIBOR transition process is managed by a sub-committee, with new LIBOR-based production ceasing after December 31, 2021[350][351] Interest Rate Sensitivity Analysis (March 31, 2021) | Metric | Value | | :--------------------------------------- | :------ | | One-year interest rate sensitivity gap | -6.17% | | Estimated % change in EVE (+100 bp) | -4.34% | | Estimated % change in EVE (+200 bp) | -13.08% | | Estimated % change in NII (+100 bp) | -1.27% | | Estimated % change in NII (+200 bp) | -3.13% | | Estimated % change in NII (yield curve inversion) | -6.98% | | Estimated % change in NII (yield curve steepening) | +0.35% | Liquidity - Most liquid assets include cash and cash equivalents ($2.7 billion at March 31, 2021) and cash flows from loan and securities repayments/sales[376] - Available borrowing capacity with FHLB-NY was $7.6 billion, and with FRB-NY was $1.2 billion at March 31, 2021[377][378] - The Bank paid $95.0 million in dividends to the Parent Company in Q1 2021, with $277.4 million remaining available for dividends without regulatory approval[384] Capital Position - The Company has a $300 million common share repurchase program, with $16.9 million remaining under authorization as of March 31, 2021[386] Accumulated Other Comprehensive Loss (AOCL) (in millions) | Item | March 31, 2021 | December 31, 2020 | | :--------------------------------------- | :--------------- | :---------------- | | AOCL | $(122.1) | $(25.5) | - The decrease in AOCL was primarily due to a $108.7 million change in net unrealized gain (loss) on available-for-sale securities and a $7.6 million change in net unrealized loss on cash flow hedges[387] Regulatory Capital Regulatory Capital Analysis (Company, March 31, 2021, in thousands) | Capital Ratio | Company Ratio | Minimum Requirement | Excess | | :--------------------------------------- | :------------ | :------------------ | :----- | | Common Equity Tier 1 | 9.84% | 4.50% | 5.34% | | Tier 1 | 11.07% | 6.00% | 5.07% | | Total Capital | 13.09% | 8.00% | 5.09% | | Leverage Capital | 8.41% | 4.00% | 4.41% | Regulatory Capital Analysis (Bank, March 31, 2021, in thousands) | Capital Ratio | Bank Ratio | Minimum Requirement | Excess | | :--------------------------------------- | :--------- | :------------------ | :----- | | Common Equity Tier 1 | 12.31% | 4.50% | 7.81% | | Tier 1 | 12.31% | 6.00% | 6.31% | | Total Capital | 12.77% | 8.00% | 4.77% | | Leverage Capital | 9.35% | 4.00% | 5.35% | - The Bank exceeds the minimum capital requirements to be categorized as "Well Capitalized"[393] Earnings Summary for the Three Months Ended March 31, 2021 Net Interest Income - Net interest income is the primary income source, driven by interest-earning assets, interest-bearing liabilities, and prepayment income[395][396] - Prepayment income, recorded as interest income, is influenced by market conditions, real estate values, and perceived interest rate direction[396][397] Year-Over-Year Comparison Net Interest Income YoY Comparison (in millions) | Item | Q1 2021 | Q1 2020 | | :--------------------------------------- | :------ | :------ | | Net interest income | $317.7 | $244.5 | | Total interest income | $423.1 | $441.0 | | Total interest expense | $105.4 | $196.6 | - The decline in interest expense was driven by an 88 bps decrease in the overall cost of funds to 0.94%, mainly from a 152 bps drop in the average cost of CDs[399] - Loan yields declined 19 bps to 3.59%, and securities yields declined 62 bps to 2.36%, contributing to lower interest income[399] Net Interest Margin Net Interest Margin (NIM) Trends | Item | Q1 2021 | Q1 2020 | | :--------------------------------------- | :------ | :------ | | GAAP Net Interest Margin | 2.48% | 2.01% | | Adjusted Net Interest Margin (non-GAAP) | 2.33% | 1.92% | | Total prepayment income contribution to NIM | 15 bps | 9 bps | - The improvement in NIM was primarily driven by lower funding costs, with the overall cost of funds declining 88 bps year-over-year to 0.94%[211][399] Provision for Credit Losses Provision for Credit Losses (in millions) | Item | Q1 2021 | Q1 2020 | | :--------------------------------------- | :------ | :------ | | Provision for credit losses | $3.6 | $20.6 | - The year-over-year improvement is attributed to significantly improved forecasted economic conditions based on the CECL methodology[406] Non-Interest Income Non-Interest Income (in thousands) | Item | Q1 2021 | Q1 2020 | | :--------------------------------------- | :------ | :------ | | Total non-interest income | $14,407 | $16,899 | | Fee income | $5,539 | $7,018 | | BOLI income | $6,890 | $7,389 | | Net (loss) gain on securities | $(483) | $534 | - Lower fee income resulted from waived retail banking fees due to COVID-19[409] Non-Interest Expense Analysis Non-Interest Expense (in millions) | Item | Q1 2021 | Q1 2020 | | :--------------------------------------- | :------ | :------ | | Total non-interest expense | $132.4 | $125.5 | | Efficiency ratio | 39.87% | 48.03% | - Increase in non-interest expense was largely due to PPE, cleaning, and other COVID-19-related expenses[412] Income Tax Expense Income Tax Expense (in millions) | Item | Q1 2021 | Q1 2020 | | :--------------------------------------- | :------ | :------ | | Income tax expense | $50.5 | $14.9 | | Effective tax rate | 25.75% | 12.94% | - Q1 2020 income tax expense included a $13.1 million tax benefit from the CARES Act's tax loss carryback[413] Item 3. Quantitative and Qualitative Disclosures about Market Risk This section refers to the 2020 Form 10-K for market risk disclosures and the 'Management of Market and Interest Rate Risk' section for updates on market risk profile and interest rate sensitivity - Market risk disclosures are detailed in the 2020 Annual Report on Form 10-K, with updates provided in the "Management of Market and Interest Rate Risk" section of this 10-Q[414] Item 4. Controls and Procedures Management, including the CEO and CFO, evaluated and concluded that disclosure controls and procedures were effective as of March 31, 2021, with no material changes in internal control over financial reporting during the quarter - Disclosure controls and procedures were evaluated and deemed effective as of March 31, 2021[415][416] - No material changes in internal control over financial reporting occurred during the fiscal quarter[417] Part II. Other Information Item 1. Legal Proceedings The Company is involved in various legal actions arising in the ordinary course of business, which management deems immaterial to its financial condition and results of operations - The Company is involved in various legal actions, but management believes the aggregate amounts are immaterial to financial condition and results[419] Item 1A. Risk Factors This section updates risk factors from the 2020 Form 10-K, focusing on risks associated with the pending Flagstar Bancorp, Inc. merger, including non-completion, regulatory approvals, integration, and litigation - Failure to complete the proposed merger with Flagstar could negatively impact business, financial results, and stock price, leading to substantial expenses and potential negative stakeholder reactions[420] - The merger is subject to regulatory approvals, which may impose conditions, limitations, or costs that could delay or prevent completion or reduce anticipated benefits[421] - Risks related to the merger include difficulties in integrating businesses, loss of key employees or customers, unexpected integration costs, and potential stockholder litigation[422][423][427] - The merger agreement may be terminated under certain circumstances, including non-completion by April 25, 2022, or mutual agreement, potentially requiring a $90 million termination fee from Flagstar[424][426] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section details the Company's share repurchases, including shares withheld for income tax obligations related to stock-based incentive plans and those repurchased under the $300 million Board-authorized common share repurchase program - Shares of common stock are withheld from stock-based incentive plans to fulfill income tax obligations, acting as repurchases[428] - The Board authorized a $300 million common share repurchase program on October 23, 2018[429] Common Stock Repurchases (Q1 2021, in thousands, except per share data) | Period | Total Shares Repurchased | Average Price Paid per Common Share | Total Allocation | | :--------------------------------------- | :----------------------- | :-------------------------------- | :--------------- | | January 1 – March 31 | 1,343,366 | $11.55 | $15,514,818 | Item 3. Defaults upon Senior Securities This item is not applicable to the Company for the reporting period Item 4. Mine Safety Disclosures This item is not applicable to the Company for the reporting period Item 5. Other Information This item is not applicable to the Company for the reporting period Item 6. Exhibits This section lists exhibits filed with the Form 10-Q, including the merger agreement with Flagstar Bancorp, Inc., organizational documents, and certifications - The exhibits include the Agreement and Plan of Merger with Flagstar Bancorp, Inc., organizational documents, and certifications (e.g., Rule 13a-14(a) and Section 1350)[436] Signatures