Filing summary
Entity mismatch: The request identifies Flagstar Bank, National Association, but the supplied 10-Q is for New York Community Bancorp, Inc. and its subsidiaries. This summary covers the supplied filing, not a Flagstar filing.
Business context and reporting period
Unaudited results cover the quarter and nine months ended September 30, 2010. The company operates New York Community Bank and New York Commercial Bank. Results reflect the December 2009 AmTrust Bank acquisition and March 2010 Desert Hills Bank acquisition; acquired covered loans and certain other assets have FDIC loss-sharing protection.
Financial performance and position
| Metric | Q3 2010 | Comparable period / balance |
|---|---|---|
| Net interest income | $286.2 million | Up 26.4% year over year; down $8.0 million from Q2 2010 |
| Net interest margin | 3.36% | Up 19 basis points year over year; down 6 basis points sequentially |
| Non-interest income | $107.1 million | Versus $15.1 million in Q3 2009; mortgage banking income was $76.5 million |
| Net income / diluted EPS | $135.6 million / $0.31 | Net income up 37.6% and diluted EPS up $0.03 year over year |
| Provision for loan losses | $32.0 million | Versus $15.0 million in Q3 2009 |
| Assets / loans, net | $41.7 billion / $29.3 billion | At September 30, 2010 |
| Deposits / borrowed funds | $22.2 billion / $13.6 billion | At September 30, 2010 |
| Stockholders’ equity | $5.5 billion | GAAP equity-to-assets ratio 13.18%; tangible equity-to-tangible-assets ratio 7.59% |
For the nine months, net income was $396.0 million, compared with $243.7 million in 2009; diluted EPS was $0.91 versus $0.70. Net interest income was $875.0 million, and net interest margin was 3.40% versus 3.04%.
Nine-month cash flows were $401.8 million used in operating activities, $1.35 billion provided by investing activities, and $1.39 billion used in financing activities. Cash and cash equivalents were $2.24 billion at period-end, down $435.8 million from year-end 2009. The filing does not provide a single general-purpose cash-flow measure for the quarter.
Material changes versus comparable periods
- Q3 revenue, defined by management as net interest income plus non-interest income, increased 62.9% year over year to $393.3 million. Growth principally reflected acquired operations, mortgage banking, higher loan balances, and a smaller securities impairment loss.
- Q3 non-interest expense rose $55.6 million year over year to $151.1 million, largely due to the acquisitions, expanded staffing and operations, and OREO-related costs.
- At September 30, total loans, net, were up about $1.0 billion from December 31, 2009; total securities were down about $1.0 billion, and borrowed funds were down $569.5 million. Core deposits increased, while certificates of deposit declined.
- Non-covered non-performing loans rose to $659.9 million from $578.1 million at year-end 2009. The allowance for loan losses increased to $155.9 million from $127.5 million. Total delinquencies, including covered assets, declined sequentially, but non-performing assets including covered assets were $1.05 billion.
Outlook, risks, and unusual items
- The filing gives no quantified earnings or revenue guidance. Management said results were supported by acquisitions and mortgage banking, while Q3 net interest income and margin fell sequentially as asset yields declined more than funding costs.
- Management cited continued economic uncertainty, elevated unemployment, and weakness in real estate markets as risks to borrower repayment, collateral values, charge-offs, and provisions. The loan portfolio is concentrated in multi-family lending, particularly New York City; ADC lending carries higher credit risk.
- FDIC loss-sharing agreements cover specified acquired assets, generally reimbursing 80% of losses up to contractual thresholds and 95% above them. Reimbursements depend on qualifying losses, servicing compliance, and FDIC payments; covered loans’ cash-flow estimates remain subject to uncertainty.
- Other risks include interest-rate and prepayment sensitivity, mortgage-loan put-back exposure, securities impairment, deposit retention and funding access, and implementation of the Dodd-Frank Act. A modeled +200-basis-point rate shock reduced estimated net portfolio value 14.90%, while modeled next-12-month net interest income increased 0.27%; these are estimates, not forecasts.
- Unusual or period-specific items included $76.5 million of Q3 mortgage banking income, a $2.4 million gain on debt repurchases, a $10.8 million Desert Hills acquisition gain recognized in the nine-month period, and substantially lower OTTI expense than in 2009. The 2009 comparison included a tax benefit related primarily to tax-audit resolutions.
- Both bank subsidiaries were categorized as well capitalized. The company reported a 13.73% Tier 1 risk-based capital ratio and 14.35% total risk-based capital ratio at September 30. The Dodd-Frank Act is expected to phase out trust preferred capital treatment beginning in 2013.
Important facts for investors to verify
- Confirm the intended registrant and filing: this document is New York Community Bancorp’s 10-Q, not Flagstar Bank’s.
- Review credit trends by loan type, especially rising non-performing CRE and ADC loans, TDR balances, charge-offs, and allowance adequacy.
- Assess the sustainability and volatility of mortgage banking income, including loan-sale volumes, MSR valuations, and derivative results.
- Examine FDIC loss-share receivable assumptions, covered-asset performance, reimbursement claims, and applicable agreement terms.
- Monitor deposit maturities and funding mix, interest-rate exposure, capital treatment changes, and any updates to regulatory or litigation risks.