Filing identity and reporting period
Important entity mismatch: The supplied filing is New York Community Bancorp, Inc.’s consolidated Form 10-K for the fiscal year ended December 31, 2011. It is not a 10-K for Flagstar Bank, National Association. The filing describes New York Community Bancorp and its subsidiaries, including New York Community Bank and New York Commercial Bank. The “2011 Q4” period metadata does not change the fact that this is an annual report.
New York Community Bancorp reported $42.0 billion in assets and operated 275 branches in five states. Its lending was concentrated in multifamily and commercial real estate, particularly in the New York metropolitan area; it also originated residential mortgage loans for sale.
Financial and operating highlights
| Metric | FY 2011 | FY 2010 |
|---|---|---|
| Net interest income | $1.200 billion | $1.180 billion |
| Non-interest income | $235.3 million | $337.9 million |
| Net income | $480.0 million | $541.0 million |
| Diluted EPS | $1.09 | $1.24 |
| Net interest margin | 3.46% | 3.45% |
| Efficiency ratio | 40.03% | 35.99% |
| Assets at year-end | $42.0 billion | $41.2 billion |
| Loans, net | $30.2 billion | $29.0 billion |
| Deposits | $22.3 billion | $21.8 billion |
| Borrowed funds | $14.0 billion | $13.5 billion |
| Stockholders’ equity | $5.6 billion | $5.5 billion |
Net interest income rose 1.7% as lower interest expense more than offset lower interest income. Prepayment penalties contributed $86.6 million to interest income, making this a meaningful, potentially variable component of results. Non-interest income declined mainly because mortgage banking income fell to $80.7 million from $183.9 million, reflecting lower residential loan production and the prior-year expiration of an FDIC servicing arrangement.
Operating cash flow was $830.2 million; investing activities used $1.211 billion; financing activities provided $455.0 million. Cash and cash equivalents ended the year at $2.0 billion. The company paid $436.9 million in common dividends, or $1.00 per share.
Changes versus the prior year
- Net income declined 11.3%, and diluted EPS fell from $1.24 to $1.09, despite modest growth in net interest income. Lower non-interest income and higher operating expenses outweighed the improvement in net interest income and the lower provision for non-covered loan losses.
- Non-interest expense increased 4.0% to $600.7 million. The efficiency ratio worsened to 40.03% from 35.99%.
- Loan originations for investment rose to $9.0 billion from $4.3 billion, led by multifamily and CRE. Residential one-to-four-family originations for sale fell to $7.2 billion from $10.9 billion.
- Non-performing non-covered loans declined to $325.8 million from $624.4 million; their share of non-covered loans fell to 1.28% from 2.63%. However, net charge-offs increased to $100.7 million from $59.5 million, or 0.35% of average loans versus 0.21%.
- Core deposits grew by $927.0 million, while certificates of deposit fell by $461.9 million. Wholesale borrowings increased by $938.5 million.
Credit, capital, liquidity, and risks
- Loan concentrations: Multifamily loans were $17.4 billion and CRE loans $6.9 billion at year-end; much of the portfolio was tied to New York City real estate. The filing identifies local real estate values, vacancies, rents, unemployment, and borrower repayment capacity as key credit risks.
- Credit costs and reserves: The provision was $79.0 million for non-covered loans and $21.4 million for covered loans. The non-covered allowance was $137.3 million, or 0.54% of non-covered loans. Covered assets are subject to FDIC loss-sharing agreements, generally reimbursing 80% of losses up to specified thresholds and 95% beyond them, but coverage is subject to contractual terms and time limits.
- Liquidity and funding: Deposits were $22.3 billion, including $3.9 billion of brokered deposits. Wholesale borrowings were $13.4 billion, or 32.0% of assets. The company reported $3.7 billion in available FHLB-NY borrowing capacity. CDs totaling $5.5 billion were due within one year; $11.3 billion of wholesale borrowings were callable in 2012. Management said it expected funding to be sufficient to meet obligations and commitments.
- Capital: Consolidated total risk-based capital was 14.23%, Tier 1 risk-based capital 13.59%, and leverage capital 9.09%; both banks were classified as well capitalized. Tangible equity was $3.1 billion, or 7.78% of tangible assets. The filing estimates that the phase-out of certain trust preferred securities and cumulative preferred stock could reduce capital by $412.0 million and the Tier 1 leverage ratio by 105 basis points by the end of the phase-in, absent offsetting changes.
- Interest-rate and market exposure: The one-year interest-rate gap was negative 0.92%. The company estimated that a 100-basis-point rate increase would reduce next-12-month net interest income by 0.44%, and a 200-basis-point increase by 0.73%. The filing cautions that these model estimates depend on assumptions about prepayments, deposit behavior, and market rates.
- Other risks and contingencies: Risks include regulatory and compliance changes, FDIC assessments, reliance on wholesale funding and subsidiary dividends, mortgage-loan repurchase representations and warranties, FDIC loss-share compliance, and operational, cybersecurity, litigation, and acquisition risks. The mortgage repurchase reserve was $5.3 million; management said reasonably possible losses above the reserve were not material. Ordinary-course legal proceedings were described as immaterial in aggregate.
Outlook, unusual items, and assurance
The filing provides no quantified earnings or revenue guidance. Management cited slow economic recovery, stronger local multifamily and CRE activity, continued weakness in the national housing market, low short-term rates, and improving non-covered asset quality. It also warned that further declines in property values or economic weakness could increase credit losses and provisions.
Notable items included $36.6 million of net securities gains, an $18.1 million OTTI loss recognized in earnings, $17.6 million of FDIC indemnification income, and a $9.8 million gain on the sale of the insurance premium financing business. The independent auditor issued an unqualified opinion on the financial statements and internal control over financial reporting.
Key facts investors should verify
- Confirm the intended issuer: this source is New York Community Bancorp, Inc., not Flagstar Bank, National Association.
- Review the full 10-K’s loan-quality disclosures, including covered-loan delinquency and cash-flow assumptions, TDRs, charge-offs, and the adequacy of the allowance.
- Assess funding concentration and refinancing exposure, especially brokered deposits, callable wholesale borrowings, and near-term CD maturities.
- Evaluate how much earnings depended on prepayment penalties, securities gains, FDIC indemnification, and other non-recurring or volatile items.
- Check the effects of regulatory capital changes, including the planned phase-out of qualifying trust preferred and preferred instruments, on capital ratios and dividend capacity.