Business context and reporting period
Entity discrepancy: The supplied filing is New York Community Bancorp, Inc. (NYSE: NYCB), not Flagstar Bank, National Association. This summary reflects the filing’s actual registrant. It is a Form 10-Q for the quarter and six months ended June 30, 2012; financial statements are unaudited. The company operates banking and residential mortgage banking businesses and completed its assumption of Aurora Bank FSB deposits on June 28, 2012.
Financial performance and position
Amounts are in millions of dollars except per-share data and ratios.
| Metric | Q2 2012 | Comparable period |
|---|---|---|
| Net income | $131.2 | $119.5 in Q2 2011; $118.3 in Q1 2012 |
| Diluted EPS | $0.30 | $0.27 in both comparison quarters |
| Net interest income | $296.7 | $301.9 in Q2 2011; $288.4 in Q1 2012 |
| Net interest margin | 3.30% | 3.50% in Q2 2011; 3.24% in Q1 2012 |
| Non-interest income | $98.2 | $58.9 in Q2 2011 |
| Non-interest expense | $155.4 | $155.0 in Q2 2011 |
| Loan-loss provisions | $33.4 | $23.7 in Q2 2011 |
- For the first six months, net income was $249.5 million and diluted EPS was $0.56, versus $242.6 million and $0.55 in 2011. Net interest income fell to $585.1 million from $605.2 million; non-interest income rose to $160.2 million from $117.5 million.
- Mortgage banking income reached $58.3 million in Q2, up from $11.8 million a year earlier, reflecting stronger mortgage production, higher sale margins, and servicing income. Prepayment penalty income increased to $32.0 million from $25.9 million year over year and supported quarterly margin.
- At June 30, assets were $43.5 billion, deposits $25.0 billion, net loans $30.9 billion, and stockholders’ equity $5.6 billion. Total assets rose $1.5 billion from year-end; deposits increased $2.7 billion, largely from Aurora, while borrowed funds fell $1.4 billion to $12.6 billion.
- Cash and cash equivalents were $3.2 billion, up from $2.0 billion at year-end. For the six months, operating cash flow was $395.7 million, investing cash outflow $365.7 million, and financing cash inflow $1.1 billion.
- Non-covered non-performing loans declined to $252.0 million, or 0.95% of non-covered loans, from $325.8 million and 1.28% at year-end. The non-covered loan allowance was $137.9 million, equal to 54.73% of non-performing loans. Covered-loan delinquencies are accounted for separately under FDIC loss-sharing arrangements.
- Bank subsidiaries remained above “well capitalized” thresholds: New York Community Bank reported leverage, Tier 1 risk-based, and total risk-based ratios of 8.53%, 12.82%, and 13.54%; New York Commercial Bank reported 13.30%, 16.77%, and 17.43%.
Changes, outlook, risks, and unusual items
- Year-over-year Q2 earnings growth was driven mainly by mortgage banking income. Lower market rates and reinvestment at lower yields reduced asset yields: six-month net interest margin was 3.27%, down from 3.54% in 2011.
- The company recorded an $18.4 million provision for covered loans, largely related to deterioration in acquired one-to-four-family and home-equity portfolios; $14.8 million of FDIC indemnification income largely offset it. The filing says loss-sharing generally reimburses 80% of covered losses up to specified thresholds and 95% beyond them.
- The Aurora transaction added $2.2 billion of deposits and $24.0 million in cash consideration, which will be amortized over the assumed deposits’ expected life as a reduction in interest expense. Aurora deposits also contributed to a more negative one-year interest-rate gap, which was negative 4.51% versus negative 0.92% at year-end.
- Management cited low rates, refinancing activity, and a flattened yield curve. No specific earnings or financial guidance is provided. A July 24, 2012 dividend declaration set a quarterly cash dividend of $0.25 per share, payable August 17 to shareholders of record August 7.
- Key risks include real-estate and local economic weakness, borrower and collateral deterioration, interest-rate and prepayment changes, deposit flows and wholesale-funding access, acquisition integration, mortgage-loan repurchase claims, FDIC loss-share performance, regulatory changes, and valuation uncertainty. Management noted that estimates for loan-loss allowances, goodwill, securities impairment, and deferred tax assets are particularly judgment-sensitive.
- At June 30, $3.3 billion of loan commitments and $707.4 million of commitments to purchase GSE securities were outstanding. The company also disclosed $181.8 million of standby, performance, and commercial letters of credit. Management said liquidity was sufficient to meet commitments.
- There were no material changes to the risk factors in the 2011 Form 10-K; legal proceedings were reported as not applicable. The filing reported effective disclosure controls and no material quarterly change in internal control over financial reporting.
Most important facts to verify
- Confirm the intended company: this filing is for New York Community Bancorp, not Flagstar Bank, National Association.
- Review the quality and sustainability of mortgage banking gains and prepayment penalty income, and the decline in net interest margin versus 2011.
- Assess covered-loan credit deterioration, FDIC reimbursement assumptions, and the adequacy of loan-loss allowances.
- Examine Aurora deposit composition, near-term certificate maturities, wholesale funding reliance, and interest-rate sensitivity assumptions.
- Verify bank capital ratios, dividend capacity and payments, and outstanding loan, securities-purchase, and mortgage repurchase obligations.