Business context and reporting period
Filing identity mismatch: The supplied filing is New York Community Bancorp, Inc.’s Form 10-Q for the quarter ended June 30, 2010—not a filing for Flagstar Bank, National Association. The summary below reflects the filing text; verify the intended registrant before relying on it.
New York Community Bancorp operated New York Community Bank and New York Commercial Bank. The quarter reflected the expanded operations of FDIC-assisted AmTrust and Desert Hills acquisitions, with acquired assets and deposits supporting growth and FDIC loss-sharing agreements covering substantial portions of acquired credit risk.
Financial results and position
Amounts are in millions of dollars unless otherwise noted.
| Metric | Q2 2010 | Comparable period / change |
|---|---|---|
| Net interest income | $294.2 | Up 35.2% year over year |
| Net interest margin | 3.42% | Up 36 basis points year over year; up 1 basis point sequentially |
| Non-interest income | $80.4 | Versus a loss of $17.7 in Q2 2009 |
| Provision for loan losses | $22.0 | $12.0 in Q2 2009; $20.0 in Q1 2010 |
| Non-interest expense | $141.4 | Up $34.0 year over year |
| Net income / diluted EPS | $136.3 / $0.31 | Net income up 141.4%; EPS was $0.16 in Q2 2009 |
| Net charge-offs | $18.9 | 0.07% of average loans |
For the six months ended June 30, net income was $260.4 million, diluted EPS was $0.60, net interest income was $588.8 million, and the provision for loan losses was $42.0 million. Cash from operating activities was negative $279.9 million; investing activities provided $1.215 billion and financing activities used $992.1 million. Cash and cash equivalents ended at $2.614 billion, down $56.5 million from year-end.
At June 30, total assets were $42.011 billion, net loans $29.009 billion, deposits $22.444 billion, total borrowed funds $13.666 billion, total liabilities $36.564 billion, and stockholders’ equity $5.446 billion. Tangible equity to tangible assets was 7.39% (a non-GAAP measure). The company reported consolidated Tier 1 risk-based capital of 13.75% and total risk-based capital of 14.30%; both bank subsidiaries were categorized as well capitalized.
Material changes versus prior periods
- Q2 net income increased $79.8 million year over year. Growth reflected acquisition-related asset and deposit expansion, stronger net interest income, mortgage banking income, and lower funding costs.
- The Q2 non-interest income comparison also benefited from a $10.8 million Desert Hills bargain-purchase gain. Q2 2009 had included a $39.7 million OTTI loss on securities and an FDIC special assessment; 2010 OTTI losses were immaterial in the quarter.
- Year-over-year operating costs rose, largely due to the acquired branches, staff, and mortgage banking operations. Q2 operating expenses were $133.5 million; the reported efficiency ratio was 35.63%.
- Compared with March 31, non-performing loans declined $97.9 million to $636.8 million and non-performing assets declined $83.9 million to $666.9 million. The allowance for loan losses rose to $140.6 million from $127.5 million at year-end.
- Available-for-sale and held-to-maturity securities totaled $4.697 billion, down from $5.742 billion at December 31. Management attributed the decline partly to repayments and calls of securities amid lower interest rates.
- Deposits increased $127.3 million from year-end, while borrowed funds decreased $498.2 million. Certificates of deposit due within one year totaled $6.9 billion.
Outlook, commentary, risks and unusual items
- No formal earnings guidance is provided. Management expected a significant portion of its $1.7 billion GSE debenture portfolio to be called in Q3 2010 and cautioned that reinvestment yields would be lower than those on called securities.
- Management cited improving linked-quarter asset quality and loan production, including $532.4 million of Q2 multifamily originations, while noting that high unemployment and uncertain economic conditions could reverse credit improvements.
- Credit exposure is concentrated in real estate lending, particularly multifamily loans in New York City. Non-performing loans were 2.26% of total loans, and the allowance covered 22.08% of non-performing loans. Covered acquired loans past due are accounted for separately and can be classified as performing under acquisition accounting despite delinquency.
- FDIC loss sharing generally reimburses 80% of covered losses up to specified thresholds and 95% above them. Reimbursement depends on asset performance, claims, servicing compliance, and the terms of the agreements; ultimate collections may differ from estimates.
- Other material uncertainties include real estate values and vacancies, loan modifications and troubled debt restructurings, securities impairment and fair-value assumptions, interest-rate and prepayment risk, mortgage loan repurchase exposure, and execution/integration of acquisitions.
- The July 2010 Dodd-Frank Act may increase compliance costs and change regulation. Management also disclosed anticipated 2010 tax expense increases from New York tax-law changes; the filing estimated approximately $2.4 million of added current tax expense, partly offset by a one-time deferred-tax benefit.
- The board declared a $0.25-per-share quarterly dividend payable August 17, 2010. The filing reported effective disclosure controls and no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Confirm whether New York Community Bancorp, rather than Flagstar Bank, is the intended registrant and whether this is the intended filing.
- Reconcile the improvement in non-covered asset-quality measures with covered loans past due and total non-performing assets including covered assets.
- Assess allowance adequacy, charge-off trends, troubled debt restructurings, and the sensitivity of credit estimates to local real estate and employment conditions.
- Review FDIC reimbursement assumptions, servicing obligations, and possible true-up payments for the AmTrust and Desert Hills acquisitions.
- Evaluate sustainability of earnings excluding the Desert Hills acquisition gain and other acquisition-related or securities-impairment items, as well as the outlook for mortgage banking income and securities reinvestment yields.
- Review near-term CD maturities, reliance on wholesale funding, interest-rate sensitivity, and capital treatment changes affecting trust preferred securities under Dodd-Frank.