Filing summary
Important identity discrepancy: The provided filing is New York Community Bancorp, Inc.’s Form 10-K, not a 10-K for Flagstar Bank, National Association. The results below are for New York Community Bancorp and its consolidated subsidiaries, including New York Community Bank and New York Commercial Bank.
Business context and reporting period
Fiscal year ended December 31, 2010. The company operated a multi-bank franchise focused on deposits, New York-area multifamily and commercial real estate lending, and mortgage banking that originated one-to-four-family loans for sale to government-sponsored enterprises (GSEs). Results include a full year of AmTrust operations, acquired in December 2009, and nine months of Desert Hills operations, acquired in March 2010.
Financial and operating metrics
| Metric | 2010 | 2009 |
|---|---|---|
| Net interest income | $1,180 million | $905 million |
| Net interest margin | 3.45% | 3.12% |
| Non-interest income | $338 million | $158 million |
| Net income | $541 million | $399 million |
| Diluted earnings per share | $1.24 | $1.13 |
| Efficiency ratio | 35.99% | 36.13% |
| Operating cash flow | $(66) million | $212 million |
Total revenue was approximately $1.518 billion, up 42.8%; net income rose 35.7%. Mortgage banking income was $183.9 million, including $136.5 million from originations and $47.4 million from servicing. The company originated $10.9 billion of one-to-four-family loans for sale and $4.3 billion of loans for its portfolio.
At year-end, total assets were $41.19 billion, down from $42.15 billion. Net loans were $29.04 billion; deposits were $21.81 billion, down $507 million; and borrowed funds were $13.54 billion, including $12.50 billion of wholesale borrowings. Cash and cash equivalents were $1.93 billion, down from $2.67 billion. The company reported $3.3 billion of unused FHLB-NY credit lines. Investing activities provided $1.30 billion and financing activities used $1.97 billion; cash declined $743 million during the year.
Stockholders’ equity was $5.53 billion, or 13.42% of assets; tangible equity was $3.01 billion, or 7.79% of tangible assets. Consolidated total risk-based, Tier 1 risk-based, and leverage capital ratios were 14.36%, 13.69%, and 9.07%, respectively. Both subsidiary banks were classified as well capitalized. Dividends were $1.00 per common share for the year.
Material changes versus the prior year
- Net interest income increased 30.3%, supported by the full-year AmTrust contribution, lower funding costs, and loan growth. Net interest margin expanded 33 basis points.
- Non-interest income rose substantially, led by mortgage banking income of $183.9 million versus $12.1 million in 2009. The prior year included a $139.6 million AmTrust bargain purchase gain; 2010 included a $2.9 million Desert Hills gain and $22.4 million of net securities-sale gains.
- Provision for loan losses increased to $102.9 million from $63.0 million, including $91.0 million for non-covered loans and $11.9 million for covered loans.
- Operating expenses increased to $546.2 million from $384.0 million, reflecting the expanded franchise, staffing, higher FDIC costs, and acquired operations. The efficiency ratio nevertheless improved slightly.
- Deposits and wholesale borrowings declined as the company used acquisition-related cash and asset-sale proceeds to reduce funding and support lending.
Asset quality, outlook, and risks
Non-covered non-performing assets were $652.5 million, or 1.58% of total assets, versus $593.3 million and 1.41% a year earlier. Non-performing non-covered loans were $624.4 million; net charge-offs were $59.5 million, or 0.21% of average loans. Non-performing assets including covered assets were $1.076 billion, or 2.61% of total assets. Covered assets are subject to FDIC loss-sharing agreements, generally reimbursing 80% of losses up to specified thresholds and 95% beyond them; coverage does not eliminate all credit, servicing, or collection risk.
Management cited continued economic weakness, unemployment, declining real estate values, and foreclosure activity as credit risks. The portfolio is concentrated in New York-area multifamily and commercial real estate loans. Other significant risks include interest-rate and liquidity exposure, reliance on wholesale funding, mortgage-loan repurchase claims tied to representations and warranties, FDIC reimbursement uncertainty, and increased regulatory and compliance requirements under the Dodd-Frank Act.
Management expected mortgage banking income to remain an ongoing source of non-interest income in 2011, but said it would likely fluctuate with rates, refinancing, competition, economic conditions, and loan demand. No broader quantitative earnings guidance was provided. A quarterly dividend of $0.25 per share was declared in January 2011. The filing reports that the annual goodwill impairment test found no impairment; independent auditors issued unqualified opinions on the financial statements and internal control over financial reporting.
Important facts for investors to verify
- Confirm that this NYCB 10-K, rather than a Flagstar Bank filing, is the intended source.
- Review the trend in non-performing assets, charge-offs, and allowance adequacy, including the treatment of covered loans and FDIC reimbursements.
- Assess the concentration of lending in New York-area multifamily and commercial real estate, and the effect of local property and employment conditions.
- Examine the composition and cost of funding, including wholesale borrowings, brokered deposits, near-term certificate-of-deposit maturities, and callable debt.
- Separate recurring operating performance from acquisition gains, securities gains, mortgage banking results, and other unusual items.
- Monitor mortgage-servicing valuation, loan-sale representations and warranties, regulatory changes, and the ability of bank subsidiaries to upstream dividends.