Filing Summary: New York Community Bancorp, Inc. — Q1 2012
Important entity mismatch: The request identifies FLAGSTAR BANK, NATIONAL ASSOCIATION, but the supplied Form 10-Q is for New York Community Bancorp, Inc. The financial information below pertains to New York Community Bancorp and its subsidiaries, not Flagstar.
Business context and reporting period
The filing covers the unaudited quarter ended March 31, 2012, with results compared primarily with the quarter ended March 31, 2011 and balance-sheet measures compared with December 31, 2011. The company operates community and commercial banking businesses and a residential mortgage banking business. Its loan portfolio is concentrated in multifamily and commercial real estate lending, especially in the New York metropolitan area.
Financial performance and position
| Metric | Q1 2012 / March 31, 2012 | Comparison |
|---|---|---|
| Total assets | $43.04 billion | Up $1.01 billion from year-end 2011 |
| Net interest income | $288.4 million | Down $14.8 million year over year |
| Net interest margin | 3.24% | 3.58% in Q1 2011; 3.45% in Q4 2011 |
| Net income | $118.3 million | Down from $123.2 million in Q1 2011 |
| Diluted earnings per share | $0.27 | $0.28 in Q1 2011 and Q4 2011 |
| Non-interest income | $62.0 million | Up $3.4 million year over year |
| Non-interest expense | $150.2 million | Up $3.5 million year over year |
| Cash and cash equivalents | $2.36 billion | Up $354.0 million from year-end 2011 |
| Total deposits | $22.94 billion | Up $666.7 million from year-end 2011 |
| Total borrowed funds | $14.28 billion | Up $315.7 million from year-end 2011 |
| Stockholders’ equity | $5.58 billion | Up $14.2 million from year-end 2011 |
Interest expense fell year over year, but the decline in asset yields was greater, weighing on net interest income and margin. Mortgage banking income increased to $35.2 million from $19.9 million in Q1 2011. The provision for losses on non-covered loans was $15.0 million, versus $26.0 million a year earlier.
Cash flows for the quarter were $741.9 million provided by operating activities, $1.26 billion used in investing activities, and $870.0 million provided by financing activities. Cash increased by $354.0 million to $2.36 billion. Available FHLB-NY borrowing capacity was $3.4 billion at quarter-end. Certificates of deposit totaling $5.8 billion were due within one year.
The company reported tangible equity to tangible assets of 7.64% and adjusted tangible equity to adjusted tangible assets of 7.79% (company-defined non-GAAP measures). The company, Community Bank, and Commercial Bank reported total risk-based capital ratios of 14.06%, 13.27%, and 17.55%, respectively.
Material changes and asset quality
- Non-covered loans held for investment increased $1.0 billion to $26.6 billion, led by multifamily and commercial real estate lending. Multifamily loans were 66.9% of this portfolio.
- Non-performing non-covered loans declined to $306.1 million from $325.8 million at year-end; non-performing non-covered assets fell to $367.0 million from $410.4 million. Non-covered loans 30–89 days past due declined to $60.9 million from $111.7 million.
- Net charge-offs were $15.5 million, or 0.05% of average loans on a non-annualized basis, compared with $38.6 million, or 0.14%, in Q1 2011. The allowance for non-covered loan losses was $136.8 million, equal to 44.68% of non-performing non-covered loans.
- Covered loans were $3.64 billion. The filing reported $343.1 million of covered loans at least 90 days past due; these are treated as performing under the acquired-loan accounting method and are subject to FDIC loss-sharing agreements.
Outlook, risks, contingencies, and unusual items
- Management characterized performance as solid amid a flatter yield curve and continued economic weakness. The filing provides no specific earnings or revenue guidance.
- The company agreed to assume approximately $2.3 billion of FDIC-insured deposits from Aurora Bank FSB, mostly CDs. The deal was expected to close in Q2 2012, subject to regulatory approval, with Aurora to pay the bank $24 million.
- A $90 million senior note was due June 22, 2012. The company also disclosed that $11.4 billion of wholesale borrowings were callable in 2012 and said it did not expect them to be called in the prevailing rate environment.
- Key risks include concentration in real estate lending and New York-area collateral, local economic and property-market weakness, interest-rate and prepayment risk, funding and deposit-retention needs, and the uncertain estimates involved in loan-loss allowances, acquired covered loans, securities impairment, mortgage servicing rights, and goodwill.
- Mortgage loan sales expose the company to GSE representation-and-warranty repurchase claims. The related reserve was $6.2 million; 29 new requests totaling $6.7 million were received in the quarter, with 10 requests totaling $2.3 million outstanding at quarter-end.
- Management reported effective disclosure controls and no material change in internal control over financial reporting. The filing reported no applicable legal proceedings and no material changes to the risk factors in the 2011 Form 10-K.
- The board declared a $0.25-per-share quarterly dividend, payable May 17, 2012. The company repurchased 187,609 shares for approximately $2.4 million during Q1.
Most important facts for investors to verify
- Confirm the filing identity: the supplied 10-Q is for New York Community Bancorp, not Flagstar Bank, National Association.
- Review whether margin pressure from asset repricing and lower prepayment income persists, and whether mortgage banking revenue offsets it.
- Track multifamily/CRE concentration, non-performing loans, charge-offs, and allowance coverage; separately assess the covered-loan balances and FDIC reimbursement assumptions.
- Check the completion and economics of the Aurora deposit assumption, including regulatory approval and deposit retention/costs.
- Assess liquidity and refinancing exposure, including near-term CD maturities, callable wholesale borrowings, and the June 2012 senior-note maturity.
- Review the full filing for interest-rate sensitivity assumptions, securities impairment exposure, and potential GSE repurchase obligations.