Filing summary
Entity and period: The supplied filing is New York Community Bancorp, Inc.’s unaudited Form 10-Q for the quarter and six months ended June 30, 2009. This does not appear to be a filing by Flagstar Bank, National Association; verify the issuer before relying on this summary.
Business context and financial results
The company is a bank holding company with New York Community Bank and New York Commercial Bank as its principal banking subsidiaries. It reported $32.9 billion of assets and focused lending primarily on multifamily and commercial real estate in the Metro New York region.
| Metric | Q2 2009 | Comparison |
|---|---|---|
| Interest income | $401.7 million | Up $8.4 million year over year |
| Net interest income | $217.6 million | Up $87.0 million, or 66.7%, year over year |
| Net interest margin / spread | 3.06% / 2.89% | Up 112 / 125 basis points year over year |
| Net income (loss) | $56.4 million; $0.16 per diluted share | Compared with a $154.8 million loss; $(0.47) per share |
| Net income (loss), six months | $145.1 million; $0.42 per share | Compared with an $82.4 million loss; $(0.25) per share |
Higher net interest income reflected loan growth and lower funding costs. Q2 average cost of funds fell 150 basis points year over year to 2.76%. The comparison is affected by substantial 2008 charges, including a $285.4 million debt-repositioning expense and a $39.6 million interest charge in Q2 2008.
Balance sheet, credit, liquidity, and capital
- Loans: Net loans were $22.7 billion at June 30, up $581 million from year-end. Multifamily loans were $16.2 billion, about 71% of total loans; 92.8% of the multifamily portfolio was secured in the Metro New York region.
- Credit quality: Non-performing loans rose to $340.2 million, or 1.49% of loans, from $113.7 million and 0.51% at year-end. Non-performing assets were $341.6 million, or 1.04% of assets. Q2 net charge-offs were $9.2 million, including a $5.2 million charge-off on one out-of-state multifamily loan.
- Allowance: The allowance for loan losses was $98.1 million, or 0.43% of loans, versus $94.4 million at year-end; six-month provision was $18.0 million versus $1.7 million. Allowance coverage of non-performing loans fell to 28.83% from 83.00% at year-end.
- Securities: Total securities were $5.64 billion, down 4.4% from year-end. Approximately 90% of the portfolio consisted of government-sponsored enterprise securities. Q2 net OTTI recognized in earnings was $39.7 million; total OTTI was $51.1 million, with $11.3 million of non-credit impairment recorded in other comprehensive income.
- Funding and liquidity: Deposits totaled $14.35 billion, broadly flat with year-end. Borrowed funds increased to $14.06 billion from $13.50 billion, including $8.43 billion of FHLB advances. Cash and equivalents were $162.8 million. For the six months, operating activities used $18.9 million, investing activities used $390.3 million, financing activities provided $368.7 million, and cash declined $40.5 million.
- Capital: Stockholders’ equity was $4.21 billion, or 12.81% of assets. Tangible equity was 5.59% of tangible assets; adjusted tangible equity excluding accumulated other comprehensive loss was 5.83%. Consolidated leverage, Tier 1 risk-based, and total risk-based capital ratios were 7.74%, 11.10%, and 11.57%, respectively. Both bank subsidiaries were classified as well capitalized.
Material changes, outlook, and risks
Results benefited from lower deposit and borrowing costs and growth in average loans, but were reduced by the $12.0 million Q2 loan-loss provision, $39.7 million securities impairment charge, and $14.0 million FDIC special assessment. Management noted a sharp rise in non-performing loans and expected non-performing loans and assets could continue to increase, while stating it did not expect a commensurate rise in net charge-offs. That assessment depends on collateral values, underwriting assumptions, and economic conditions.
Management described recessionary pressure in its markets, including higher unemployment and falling home prices, as risks to borrowers and real estate collateral. Other stated risks include interest-rate changes, deposit flows and access to wholesale funding, securities credit deterioration, liquidity in financial markets, regulatory changes, and the accuracy of loan-loss and impairment estimates. The company’s one-year interest-rate gap was negative 3.33%; its modeled +200-basis-point scenario estimated a 13.49% decline in net portfolio value and a 1.24% decline in next-12-month net interest income. These are model estimates, not forecasts.
No earnings guidance was provided. A July 2009 New York City tax-law change was expected to increase current tax expense by about $2 million in each of 2009 and 2010, with a larger increase beginning in 2011. The board declared a $0.25-per-share quarterly dividend payable in August 2009. The company also announced an exchange offer for its BONUSES units, with an expected expiration date of August 25, 2009.
Most important facts to verify
- Confirm that New York Community Bancorp—not Flagstar Bank—is the intended filing and issuer.
- Review the composition, aging, collateral, and subsequent performance of the rapidly increasing non-performing loans, especially multifamily, CRE, and ADC exposures.
- Assess the assumptions behind the $39.7 million securities OTTI charge and the remaining unrealized losses, particularly on capital trust notes and other financial-institution securities.
- Check deposit retention and refinancing needs, including $5.1 billion of CDs due within one year, and the company’s reliance on wholesale borrowings.
- Evaluate the effect of the FDIC assessment, tax-law change, interest-rate exposure, and ongoing provisions on future earnings and capital.