Business context and reporting period
The supplied filing is New York Community Bancorp, Inc.’s unaudited Form 10-Q for the quarter ended March 31, 2011—not a filing for Flagstar Bank, National Association. The company reports banking operations and residential mortgage banking, with a substantial multifamily and commercial real estate lending business. Figures below are in U.S. dollars.
Financial performance and condition
| Metric | Q1 2011 / March 31, 2011 | Comparable period or change |
|---|---|---|
| Net interest income | $303.3 million | Up $8.7 million year over year; down $1.7 million from Q4 2010 |
| Net interest margin | 3.58% | 3.41% in Q1 2010; 3.61% in Q4 2010 |
| Non-interest income | $58.6 million | $55.0 million in Q1 2010; $103.3 million in Q4 2010 |
| Non-interest expense | $146.7 million | Up $10.0 million year over year; down $1.6 million from Q4 2010 |
| Net income / diluted EPS | $123.2 million / $0.28 | $124.1 million / $0.29 in Q1 2010; $149.8 million / $0.34 in Q4 2010 |
| Cash flows | Operating +$854.8 million; investing −$195.5 million; financing −$235.1 million | Operating cash flow was −$205.0 million in Q1 2010 |
| Assets / equity | $41.0 billion / $5.54 billion | Assets down $143.7 million; equity up $14.4 million from year-end |
| Loans, net | $28.5 billion | Down $526.5 million from year-end, mainly reflecting fewer loans held for sale |
| Deposits / borrowed funds | $22.2 billion / $13.0 billion | Deposits up $389.1 million; borrowings down $516.6 million from year-end |
| Liquidity and capital | Cash and equivalents $2.35 billion; tangible equity ratio 7.87%; adjusted tangible ratio 7.99% | Cash up $424.2 million; tangible ratios improved from year-end |
Material changes versus comparable periods
- Year-over-year net interest income increased as funding costs declined and prepayment penalty income rose; prepayment penalties contributed $19.6 million in Q1 2011 versus $1.3 million in Q1 2010.
- Net income was slightly lower year over year and materially below Q4 2010. Management attributed the sequential decline chiefly to weaker residential mortgage production and related mortgage banking income, lower average loan balances and yields, and higher loan-loss provision.
- Loan originations for investment reached $1.9 billion, $1.1 billion above Q1 2010 and $279.6 million above Q4 2010. Multifamily and CRE loans drove production, but higher loan satisfactions limited portfolio growth.
- Total deposits increased, led by core deposits, while certificates of deposit declined as management chose not to compete by paying higher rates. Wholesale borrowings also declined.
- Non-covered loans 30–89 days past due fell to $48.7 million from $151.0 million at year-end. Non-performing non-covered assets were $648.9 million, down modestly; however, non-performing multifamily loans increased.
- Net charge-offs rose to $38.6 million from $13.9 million in Q4 2010, principally due to reappraisals of collateral on certain large multifamily and CRE relationships. The non-covered loan-loss provision was $26.0 million.
Outlook, risks, contingencies and unusual items
- The filing gives no quantified earnings or revenue guidance. Management cited expected higher FDIC insurance premiums beginning in Q2 2011 and said its new prime-jumbo mortgage activity was not expected to contribute materially to 2011 earnings.
- Credit exposure is concentrated in real estate: multifamily loans were 70.3% of non-covered loans held for investment, and most were tied to the New York City market. Management warned that economic weakness, unemployment, declining property values and vacancies could increase delinquencies, charge-offs and provisions.
- Including covered acquired assets, non-performing assets were $1.10 billion, or 2.69% of assets, versus $1.08 billion, or 2.61%, at year-end. Covered loans past due 90 days or more totaled $374.1 million; these are treated as performing under acquisition accounting, with FDIC loss-sharing protection.
- Loans modified as troubled debt restructurings totaled $371.3 million; $243.3 million were non-accrual. The allowance for non-covered loans was $146.3 million, or 0.61% of such loans and 23.72% of non-performing non-covered loans.
- Funding risks include $13.0 billion of borrowed funds, $3.6 billion of brokered money-market deposits, and $5.5 billion of CDs maturing within one year. Management reported $11.4 billion of wholesale borrowings callable in 2011 and did not expect them to be called in the prevailing rate environment.
- Interest-rate sensitivity estimates showed a positive one-year gap of 5.07% of assets. A modeled parallel rate increase of 200 basis points reduced net portfolio value by 11.72%, while estimated next-12-month net interest income increased 1.35%; management cautioned that results depend on assumptions and actual outcomes may differ.
- Available-for-sale and held-to-maturity securities included unrealized losses; management said it did not intend, and was not more likely than not required, to sell loss-position securities before recovery. It cautioned that credit deterioration or weaker cash flows could cause future impairment charges.
- The company reported $2.0 billion of loan commitments and $139.0 million of letters of credit. Mortgage-loan representation-and-warranty liabilities were $3.9 million; possible losses beyond the estimate could not be confidently quantified.
- Management reported effective disclosure controls, no material change in internal control over financial reporting, and no material change to the risk factors in its 2010 Form 10-K. It declared a $0.25-per-share quarterly dividend payable May 17, 2011.
Important facts for investors to verify
- Confirm the entity: the provided text is for New York Community Bancorp, Inc., not Flagstar Bank, National Association.
- Review the trend in multifamily and CRE non-performing loans, charge-offs, collateral appraisals and the adequacy of the allowance.
- Assess the assumptions and reimbursement timing underlying covered-loan accounting and the FDIC loss-share receivable.
- Track mortgage originations, servicing-right valuations, mortgage repurchase claims and the effect of interest rates on earnings and liquidity.
- Monitor brokered deposits, near-term CD maturities, callable wholesale funding and the phase-out of trust preferred securities as Tier 1 capital beginning in 2013.