NYCB 2017 Annual Report

71 In the twelve months ended December 31, 2017, we recorded income tax expense of $202.0 million, reflecting pre-tax income of $668.2 million and an effective tax rate of 30.2%. The decrease in both the effective tax rate and income tax expense was due to the recently enacted Tax Cuts and Jobs Act. This resulted in the Company recording a one-time net benefit during the fourth quarter of the year, to income tax expense of $42 million, including that portion related to the re-measurement of our net deferred tax liabilities. Our effective income tax rate in 2018 is expected to be approximately 26.5%. RESULTS OF OPERATIONS: 2016 AS COMPARED TO 2015 Earnings Summary In the twelve months ended December 31, 2016, we generated earnings of $495.4 million, or $1.01 per diluted share, representing a 1.00% return on average assets and an 8.19% return on average stockholders’ equity. In the twelve months ended December 31, 2015, we recorded a net loss of $47.2 million, or $0.11 per diluted share. The net loss was attributable to a debt repositioning charge incurred in the fourth quarter in connection with the prepayment of $10.4 billion of wholesale borrowings. On a pre-tax basis, the charge was $915.0 million; on an after- tax basis, the charge was $546.8 million, or $1.17 per diluted share. In accordance with ASC 470-50, $773.8 million of the pre-tax charge was recorded as interest expense and $141.2 million was recorded as non-interest expense. The benefit of the debt repositioning is reflected in our 2016 Consolidated Results of Operations, including the interest expense on, and average cost of, borrowed funds; the interest expense on, and average cost of, interest-bearing liabilities; our net interest income; our net interest rate spread; and our net interest margin. Our 2016 and 2015 results also reflect certain expenses incurred in connection with the Astoria Financial merger agreement, which was announced on October 29, 2015 and terminated effective January 1, 2017 by mutual agreement of the companies’ Boards. In 2016, merger-related expenses totaled $11.1 million, as compared to $3.7 million in the prior year. Net Interest Income As the debt repositioning charge had no impact on our interest income or the interest expense stemming from our interest-bearing deposits in 2015, a comparison of the 2016 and 2015 amounts and measures is provided below: Interest Income • In 2016, interest income fell $16.7 million year-over-year to $1.7 billion, as the benefit of a $30.6 million increase in the interest income produced by loans was substantially exceeded by the impact of a $47.3 million decline in the interest income produced by securities and money market investments. • The increase in the interest income produced by loans was driven by a $2.7 billion rise in the average balance of such assets to $39.1 billion and tempered by a 20-basis point drop in the average yield to 3.77%. The increase in interest income on loans was also partly offset by a $36.4 million decline in the contribution of prepayment income to $60.9 million, and by an 11-basis point decrease in the contribution to the average yield to 16 basis points. • The decline in the interest income produced by securities and money market investments was driven by a $2.3 billion reduction in the average balance of such assets to $4.9 billion, primarily reflecting the aforementioned high volume of securities calls. As a result of such calls, prepayment income from securities rose $14.1 million year-over-year to $33.5 million and the contribution of prepayment income to the average yield on securities and money market investments rose 41 basis points to 68 basis points. Largely reflecting the increase in prepayment income, the average yield on securities and money market investments rose 67 basis points to 4.11% year-over-year. Interest Expense • In 2016, the interest expense on interest-bearing deposits rose $10.9 million year-over-year to $171.0 million, as a $218.0 million rise in the average balance to $26.1 billion was accompanied by a three- basis point rise in the average cost to 0.65%. While the average balance of savings accounts fell $1.6 billion year-over-year to $5.9 billion, the decrease was exceeded by the combination of a $1.2 billion rise in CDs to $6.9 billion and a $648.1 million rise in NOW and money market accounts to $13.3 billion. Similarly, while the average cost of savings accounts fell 13 basis points year-over-year, the benefit was exceeded by the impact of a one-basis point rise in the average cost of CDs and a ten-basis point rise in the average cost of NOW and money market accounts.