Filing summary: New York Community Bancorp, Inc. — quarter ended September 30, 2012
Entity note: The supplied filing is New York Community Bancorp, Inc.’s Form 10-Q, not a filing by Flagstar Bank, National Association. The company reports through New York Community Bank and New York Commercial Bank.
Business context and reporting period
This is an unaudited third-quarter and nine-month 2012 report. The company operates community and commercial banking businesses and a residential mortgage banking business. Its lending is concentrated in multifamily and commercial real estate, particularly in the New York metropolitan area. In June 2012, it assumed deposits of Aurora Bank FSB.
Financial performance and position
| Metric | Q3 2012 | Comparable period |
|---|---|---|
| Net interest income | $285.0 million | $295.0 million Q3 2011 |
| Non-interest income | $81.7 million | $58.1 million Q3 2011 |
| Net income | $128.8 million; diluted EPS $0.29 | $119.8 million; diluted EPS $0.27 Q3 2011 |
| Net interest margin | 3.17% | 3.33% Q3 2011 |
| Non-interest expense | $153.3 million | $152.6 million Q3 2011 |
For the first nine months, net income was $378.3 million, or $0.86 per diluted share, versus $362.4 million, or $0.82, in 2011. Net interest income was $870.0 million, down from $900.2 million; non-interest income was $241.9 million, up from $175.6 million; and net interest margin was 3.23%, versus 3.47%.
At September 30, 2012, total assets were $44.1 billion, deposits $24.5 billion, total loans net of allowances $31.2 billion, and stockholders’ equity $5.6 billion. Cash and cash equivalents were $2.5 billion. Borrowed funds totaled $13.6 billion, including $13.2 billion of wholesale borrowings. The filing reports nine-month operating cash flow of $537.8 million, investing cash outflow of $1.6 billion, and financing cash inflow of $1.6 billion.
Non-covered non-performing assets declined to $290.5 million, or 0.71% of non-covered assets, from $410.4 million, or 1.07%, at year-end 2011. Non-covered non-performing loans were $246.6 million; the allowance for non-covered loan losses was $139.0 million. Including covered assets, non-performing assets were $658.0 million, or 1.49% of total assets.
Reported capital measures included a 7.62% tangible equity-to-tangible assets ratio and a 7.74% adjusted ratio excluding accumulated other comprehensive loss. Both subsidiary banks exceeded regulatory “well-capitalized” thresholds. These tangible capital measures are non-GAAP.
Material changes and management commentary
- Q3 net income increased year over year, but was below the $131.2 million reported in the preceding quarter. The year-over-year improvement reflected higher mortgage banking income and lower non-covered loan-loss provision; declining net interest income partly offset the gains.
- Mortgage banking income rose to $52.6 million from $24.3 million a year earlier, supported by refinancing-driven loan production. The company originated $2.9 billion of loans for sale in Q3, while a $13.9 million servicing loss included a negative mark-to-market on mortgage servicing rights.
- The low-rate environment reduced asset yields and net interest margin. Management reported Q3 average loan yield of 5.11%, down from 5.46% a year earlier; prepayment penalty income contributed $31.5 million of Q3 interest income.
- Nine-month non-covered loan-loss provision declined to $40.0 million from $59.0 million, while covered-loan provision increased to $21.3 million from $8.7 million. Covered-loan provisions were largely offset by FDIC indemnification income of $17.0 million.
- Deposits rose $2.2 billion from year-end, mainly reflecting Aurora Bank deposits; some assumed deposits ran off in Q3 as expected. Certificates of deposit maturing within one year totaled $5.9 billion, 65.1% of CDs.
- Cash dividends paid in the first nine months totaled $328.9 million, or $0.75 per share. A further quarterly dividend of $0.25 per share was declared October 23, payable November 16, 2012.
Outlook, risks, contingencies, and unusual items
- The filing gives no specific earnings or revenue guidance. Management describes persistent interest-rate and refinancing sensitivity; its one-year interest-rate gap was negative 2.87%. Its models estimated that a 200-basis-point rate increase would reduce net portfolio value by 4.63%, while estimated next-12-month net interest income would change by negative 0.18% under that scenario. Management cautions that model assumptions may differ from actual results.
- Hurricane Sandy occurred after quarter-end and affected the company’s core New York, Long Island, and New Jersey markets. The company was assessing potential property and borrower impacts; it warned of possible increased delinquencies, restructurings, lower interest income, and additional provisions. Most branches had no significant damage, though some experienced temporary service disruptions.
- Credit exposure is concentrated in property-dependent multifamily and commercial real estate lending; repayment depends partly on property income, values, and local economic conditions. The company also identified higher-risk ADC lending, mortgage-loan repurchase representations and warranties, and FDIC loss-share estimates as areas requiring monitoring.
- Mortgage servicing rights were valued using significant unobservable assumptions. Q3 included a $42.1 million negative MSR mark-to-market, partly offset by servicing fees and derivative gains. Management stated that future MSR values are sensitive to prepayment speeds and interest rates.
- Wholesale funding and interest-rate exposure merit attention: $11.4 billion of wholesale borrowings were callable by or before December 31, 2012, although management did not expect them to be called in the then-current rate environment. Junior subordinated securities qualifying as Tier 1 capital were expected to be phased out under Dodd-Frank beginning in 2013.
- The company reported $4.1 billion of loan-origination commitments, $188.9 million of letters of credit, and $310.3 million of commitments to purchase GSE securities. Management expected available liquidity to fund these obligations.
- For the nine months, 2012 results included $1.4 million of securities gains and no securities OTTI loss; 2011 included $35.5 million of securities gains, a $9.8 million business-disposition gain, and an $18.1 million OTTI loss. Comparisons therefore include notable prior-year items.
Most important facts for investors to verify
- Confirm the issuer: the supplied document is New York Community Bancorp, Inc., not Flagstar Bank, National Association.
- Review the Q3 margin decline, mortgage banking contribution, and MSR valuation sensitivity to refinancing and interest rates.
- Assess credit quality using both covered and non-covered asset measures, including FDIC loss-share protection, delinquencies, TDRs, and allowance coverage.
- Check deposit retention and upcoming CD maturities alongside wholesale borrowing levels, callable funding, and available borrowing capacity.
- Evaluate the potential post-quarter effects of Hurricane Sandy and whether collateral insurance adequately limits borrower and credit losses.
- Distinguish GAAP equity and capital ratios from the company’s non-GAAP tangible capital measures, and account for prior-year unusual securities and disposition items.