NYCB 2017 Annual Report

67 Net Interest Margin The di rection of the Company’s net interest margin was consistent with that of its net interest income, and generally was driven by the same factors as those described above. At 2.59%, the margin was 34-basis points narrower than the margin recorded for full-year 2016. The reduction was due, in part, to a decline in prepayment income from the levels recorded in the prior year, as reflected in the table below. Adjusted net interest margin is a non-GAAP financial measure, as more fully discussed below. RECONCILIATION OF NET INTEREST MARGIN AND ADJUSTED NET INTEREST MARGIN While our net interest margin, including the contribution of prepayment income, is recorded in accordance with GAAP, adjusted net interest margin, which excludes the contribution of prepayment income, is not. Nevertheless, management uses this non-GAAP measure in its analysis of our performance, and believes that this non-GAAP measure should be disclosed in this report and other investor communications for the following reasons: 1. Adjusted net interest margin gives investors a better understanding of the effect of prepayment income on our net interest margin. Prepayment income in any given period depends on the volume of loans that refinance or prepay, or securities that prepay, during that period. Such activity is largely dependent on external factors such as current market conditions, including real estate values, and the perceived or actual direction of market interest rates. 2. Adjusted net interest margin is among the measures considered by current and prospective investors, both independent of, and in comparison with, our peers. Adjusted net interest margin should not be considered in isolation or as a substitute for net interest margin, which is calculated in accordance with GAAP. Moreover, the manner in which we calculate this non-GAAP measure may differ from that of other companies reporting a non-GAAP measure with a similar name. The following table sets forth certain information regarding our average balance sheet for the years indicated, including the average yields on our interest-earning assets and the average costs of our interest-bearing liabilities. Average yields are calculated by dividing the interest income produced by the average balance of interest-earning assets. Average costs are calculated by dividing the interest expense produced by the average balance of interest- bearing liabilities. The average balances for the year are derived from average balances that are calculated daily. The average yields and costs include fees, as well as premiums and discounts (including mark-to-market adjustments from acquisitions), that are considered adjustments to such average yields and costs. For the Twelve Months Ended Dec. 31, Dec. 31, 2017 2016 Change (%) (dollars in thousands) Total Interest Income $1,582,239 $1,674,869 -6% Prepayment Income: Loans $47,004 $60,891 -23% Securities 8,130 33,509 -76% Total prepayment income $55,134 $94,400 -42% GAAP Net Interest Margin 2.59% 2.93% -34 bp Less: Prepayment income from loans 11 bp 14 bp -3 bp Prepayment income from securities 2 8 -6 bp Total prepayment income contribution to net interest margin 13 bp 22 bp -9 bp Adjusted Net Interest Margin (non-GAAP) 2.46% 2.71% -25 bp