SEC Company Response from FLAGSTAR BANK, NATIONAL ASSOCIATION (FLG, FLG-PA, FLG-PU) (CIK 0000910073) (FLG) — Aug 31, 2011
FLAGSTAR BANK, NATIONAL ASSOCIATION (FLG, FLG-PA, FLG-PU) (CIK 0000910073)
Date: Aug. 31, 2011 · CIK: 0000910073 · Accession: 0001193125-11-238021
AI Filing Summary & Sentiment
Reasoning
File numbers found in text: 001-31565
Referenced dates: July 29, 2011
Letter
VIA EDGAR United States Securities and Exchange Commission Form 10-K for the Fiscal Year Ended December 31, 2010 (Filed March 1, 2011) Form 10-Q for the Fiscal Quarter Ended March 31, 2011 (Filed May 10, 2011) Form 8-K filed July 21, 2011 File No. 001-31565
Dear Ms. Hunsaker:
On behalf of New York Community Bancorp, Inc. (“NYB” or the “Company”), I am writing in response to the Staff’s letter, dated July 29, 2011, containing comments on NYB’s Annual Report on Form 10-K for the year ended December 31, 2010 (the “Form 10-K Report”), Form 10-Q for the Fiscal Quarter Ended March 31, 2011 (the “Form 10-Q Report”), and Current Report on Form 8-K filed July 21, 2011 (the “Form 8-K Report”).
NYB’s responses to the Staff’s comments are set out below. For convenience, each response follows the text of the comment to which it relates.
Form 10-K, for the Fiscal Year Ended December 31, 2010
Item 6. Selected Financial Data, page 42
1. We note you present asset quality ratios excluding covered loans and covered OREO. Please revise future filings to disclose, either as an additional line item within the table or in a footnote to the table, what the ratios for each period would be inclusive of covered loans and covered OREO.
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In future filings, we will present the asset quality ratios inclusive of covered loans and covered OREO as follows:
Asset Quality Ratios (Including Covered Assets)
At December 31, 2010
Non-performing loans to total loans
3.52 %
Non-performing assets to total assets
2.61
Allowance for losses to non-performing loans
17.34
Allowance for losses to total loans
0.61
Item 7. Management’s Discussion and Analysis Non-Covered Loans Held for Investment, page 49
2. We were unable to locate any disclosure relating to potential problem loans you hold at period end, including a description of the nature and extent of such loans that are not otherwise disclosed in your filing as nonaccrual loans, loans over 90-days and still accruing or troubled debt restructurings. Please revise future interim and annual filings to provide this information or, alternatively if you do not hold any potential problem loans other than those in the categories already disclosed, please clearly state that fact. If you do hold potential problem loans at any period end that are not otherwise disclosed, please ensure your revised disclosure also specifically addresses any known information about possible credit problems of the borrowers. Refer to Item III.C.2 of Industry Guide 3 for guidance.
As of December 31, 2010, the Company did not have any potential problem loans, other than what had already been disclosed in our filing that would have caused management to have serious doubts as to the ability of a borrower to comply with present loan repayment terms and which would have resulted in such disclosure. In future filings, a similar comment will be included as appropriate.
Non-Covered Loans Held for Sale, page 58
3. We note from your disclosure that you regularly sell loans to the GSEs and that you provide customary representation and warranties to the GSEs in connection with these sales. Your disclosure also states that as of December 31, 2010, you recorded a reserve for $3.5 million related to potential losses from representation and warranty obligations, which represents a significant increase from your recorded reserve of $120,000 as of December 31, 2009. Please revise your future filings to disclose that you have been receiving repurchase requests from the GSEs and describe your process for estimating your exposure as a result of such claims. Additionally, please clarify why you record expense related to representations and warranty exposure as part of general and administrative expense, instead of as an offset to mortgage banking income. Finally, given the significant increase in your reserve, and to the extent that the volume of these repurchase requests increase or your exposure continues to increase, please revise your disclosures in future filings to address each of the following:
•
Provide a roll-forward of the reserve presenting separate amounts for increases in the reserve due to changes in estimate and new loan sales and decreases attributable to utilizations/realization of losses.
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•
Include a discussion of the time period permitted to respond to the request, and the ramifications of a non-timely response.
•
Disclose the levels of unresolved claims existing at the balance sheet date by claimant.
•
Disclose, by claimant and loan type, the amount of unpaid principal balance of loan repurchase requests that were resolved during the period.
•
Include a description of your methodology and key assumptions used in determining the repurchase reserve.
•
Provide qualitative discussion of any trends in claimant requests or types of provisions causing the repurchase requests.
•
Disclose rejected claim success rates by type of claimant.
•
Discuss whether you have recourse back to any broker or mortgage company who sold you the loan, and if so, the types of actions, and success rates, of getting reimbursed for the claim. Also discuss how this expectation is being factored into the reserve obligation.
During 2010, we received a total of five repurchase requests from the GSEs. All five of these claims were resolved without cost to NYCB. In future filings, and, to the extent that activity in this area becomes more significant, we will include a roll-forward of the Reserve for Representation and Warranty Obligations. The roll-forward will disclose both the effects of estimate changes, if any, and of utilization. We will also discuss the volume of claims, success of appeal rates, and trends and causes of claims as such activity occurs.
Starting with our next filing, we will include expenses related to representations and warranty exposure as an offset to mortgage banking income, rather than as part of general and administrative expense.
4. We also note your disclosure that “there may be a range of reasonably possible losses in excess of the estimated liability that cannot be estimated with confidence” because the level of mortgage loan repurchase losses is dependent on a variety of outside factors and requires considerable management judgment. We do not believe that the term “with confidence” is consistent with the guidance in ASC 450. Please either provide an estimated range of reasonably possible loss, or provide disclosure that you are unable to estimate the loss or
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August 31, 2011
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range of possible loss without the qualifier “with confidence”, along with explicit factors as to why you are unable to provide an estimate. We believe that as time goes on and you have gained more experience in resolving the claims, you should be able to provide an estimate of reasonably possible losses in excess of the estimated liability. Alternatively, if you believe the amount or range of reasonably possible losses in excess of your accrual is not material to your results of operations, financial condition and statement of operations, please state that fact.
In future filings, we will revise our disclosure as requested and appropriate. As of December 31, 2010, we believe that the amount or range of possible losses in excess of our accrual was not material to our operations at that date.
Liquidity, Contractual Obligations and Off-Balance Sheet Commitments and Capital Position, page 74
5. We note your disclosure that cash and cash equivalents represented your most liquid asset along with your disclosure of the amount of cash and cash equivalents at December 31, 2010 and 2009. Given the importance of liquidity to your operations, please address in more detail your additional (e.g. secondary) sources of liquidity such as liquid securities, available borrowing capacity from the FHLB, etc. Please also provide a similar type disclosure for the Parent Company. In providing this enhanced disclosure, please consider including a summary tabular disclosure of these amounts, by liquidity source, in your Liquidity disclosure.
Additional sources of liquidity are deposits from the Company’s large and diverse branch network and wholesale borrowings through the FHLB-NY. The availability of these wholesale funds is generally based on the amount of mortgage loan collateral available under a blanket lien pledged to the FHLB-NY and, to a lesser extent, on the amount of available securities that may be pledged to collateralize these borrowings. As of December 31, 2010, the Company’s available borrowing capacity with the FHLB-NY was $3.3 billion. In addition, the Community Bank and the Commercial Bank combined had $653 million in available-for-sale securities.
In addition to the $368 million in available dividends from its subsidiary banks, sources of liquidity for the Parent Company at December 31, 2010, included cash and cash equivalents of $82.1 million and available-for-sale securities of $6.0 million.
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August 31, 2011
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Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Interest Rate Sensitivity Analysis, page 93
6. We note your disclosure that your model incorporates anticipated prepayments, including anticipated calls on wholesale borrowings. Please revise future filings to disclose the following:
•
Disclose whether you perform an analysis to validate your prepayment and call assumptions. If so, disclose what you do to validate these assumptions, how often you do this and how successful you are at estimating prepayments as compared to the actual prepayments for the period.
•
Disclose more clearly how the re-pricing of loans to market rates affects your prepayment assumptions. For example, if loans were to re-price by 100 basis points, disclose the impact this may have on the assumed prepayment rate of your loans.
•
Discuss whether one of the large drivers of going from a negative one-year gap at December 31, 2009 to a positive one-year gap at December 31, 2010 was driven in part by changes in prepayment assumptions.
•
We note your disclosure that for loans and mortgage-related securities, prepayment rates were assumed to range up to 22% annually. Please clarify the range of assumptions used for each type of asset and liability and consider discussing a weighted average prepayment assumption if the range is wide.
In future filings we will revise our disclosure in a manner similar to the following:
We perform an analysis to validate our prepayment assumptions for our multi-family and commercial real estate loan portfolios. On a monthly basis, we review our historical prepayment rates and compare them to our projected prepayment rates. We continually review the actual prepayment rates to ensure that our projections are as accurate as possible since prepayments on these types of loans are not as closely correlated to changes in interest rates as prepayments on single-family residential loans would be. In addition, we review the call provisions in our borrowings and investment portfolios and, on a monthly basis, compare the actual calls to our projected calls to ensure that our projections are reasonable.
As of December 31, 2010, the impact of a 100-basis point decline in market interest rates would have increased our projected prepayment rates by approximately 22%.
The change from a negative one-year gap at December 31, 2009 to a positive one-year gap at December 31, 2010 was, in part, attributable to changes in prepayment rate assumptions. Prepayment rate assumptions on multi-family and commercial real estate loans were increased in the December 2010 analysis primarily due to an increase in actual prepayment rates at the end of 2010. However, the Company does not believe that changes in prepayment assumptions were a
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“large” driver, as other factors also contributed to the change. Such factors included an increase in loans held for sale and a decrease in certificates of deposit expected to mature or reprice within one year.
At December 31, 2010, the range of prepayment rate assumptions used for each asset and liability were as follows: 19% to 22% for mortgage-backed securities; 16% to 18% for multi-family and commercial real estate loans; and 0% for our borrowed funds.
Item 8. Financial Statements
Note 2: Summary of Significant Accounting Policies Loans, page 102
7. We note your disclosure on pages 50 through 52 regarding prepayment penalties on multi-family and CRE loans. We also note your disclosure on page 80 that the level of prepayment penalty income will vary based on a number of factors and is difficult to predict. Please revise this footnote disclosure in future filings to discuss in greater detail your accounting treatment for prepayment penalty income and the assumptions that go into recognizing the amount, including any back-testing you perform to validate the assumptions utilized. For example, we note your disclosure on page 79 that an increase in intermediate term-rates triggered an increase in refinancing activity, which in turn prompted an increase in prepayment penalty income on your multi-family and CRE loans. Discuss the reasons why prepayments would increase during periods of rising rates. Further, please tell us the specific accounting guidance you rely on to support your accounting policy.
Prepayment penalty income is recorded only when cash is received. Accordingly, there are no assumptions that go into recognizing prepayment penalty income.
The amount of the prepayment penalty is determined by the prepayment penalty percentage noted in the loan documents multiplied by the balance of the loan at the time of the prepayment. Prepayment penalties may increase during periods of rising rates (or periods when rates are expected to rise) because our borrowers may opt to lock in a lower rate at such times, rather than take the risk of refinancing in the future when interest rates could be higher.
8. We note your disclosure that you charge-off loans, or portions of loans, in the period that such loans are deemed uncollectible. You state that collectability of the loan is determined through an estimate of the fair value of the underlying collateral and/or assessment of the financial condition and repayment capacity of the borrower. Please expand this disclosure to discuss the time period that this assessment is typically made after classifying the loan as impaired and obtaining an updated appraisal and making an assessment of the borrower’s repayment capacity. As part of your revised disclosure, please disclose whether there is a maximum past due time period that you would charge-off a loan, or portion thereof. Refer to ASC 310-10-50-11B(b) for guidance.
United States Securities and Exchange Commission
August 31, 2011
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In future filings we will expand and revise our disclosure as follows:
The Company charges off loans, or portions of loans, in the period that such loans, or portions thereof, are deemed uncollectible. The collectability of individual loans is determined through an assessment of the financial condition and repayment capacity of the borrower and/or through an estimate of the fair value of the underlying collateral. Generally, the time period in which this assessment is made
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CORRESP 1 filename1.htm Correspondence 615 MERRICK AVENUE, WESTBURY, NY 11590 516-683-4014 — Fax # 516-683-8344 — www.myNYCB.com Thomas R. Cangemi Senior Executive Vice President & Chief Financial Officer August 31, 2011 VIA EDGAR Stephanie L. Hunsaker Senior Assistant Chief Accountant United States Securities and Exchange Commission 100 F Street, N.E. Washington, DC 20549 Re: New York Community Bancorp, Inc. Form 10-K for the Fiscal Year Ended December 31, 2010 (Filed March 1, 2011) Form 10-Q for the Fiscal Quarter Ended March 31, 2011 (Filed May 10, 2011) Form 8-K filed July 21, 2011 File No. 001-31565 Dear Ms. Hunsaker: On behalf of New York Community Bancorp, Inc. (“NYB” or the “Company”), I am writing in response to the Staff’s letter, dated July 29, 2011, containing comments on NYB’s Annual Report on Form 10-K for the year ended December 31, 2010 (the “Form 10-K Report”), Form 10-Q for the Fiscal Quarter Ended March 31, 2011 (the “Form 10-Q Report”), and Current Report on Form 8-K filed July 21, 2011 (the “Form 8-K Report”). NYB’s responses to the Staff’s comments are set out below. For convenience, each response follows the text of the comment to which it relates. Form 10-K, for the Fiscal Year Ended December 31, 2010 Item 6. Selected Financial Data, page 42 1. We note you present asset quality ratios excluding covered loans and covered OREO. Please revise future filings to disclose, either as an additional line item within the table or in a footnote to the table, what the ratios for each period would be inclusive of covered loans and covered OREO. United States Securities and Exchange Commission August 31, 2011 Page 2 In future filings, we will present the asset quality ratios inclusive of covered loans and covered OREO as follows: Asset Quality Ratios (Including Covered Assets) At December 31, 2010 Non-performing loans to total loans 3.52 % Non-performing assets to total assets 2.61 Allowance for losses to non-performing loans 17.34 Allowance for losses to total loans 0.61 Item 7. Management’s Discussion and Analysis Non-Covered Loans Held for Investment, page 49 2. We were unable to locate any disclosure relating to potential problem loans you hold at period end, including a description of the nature and extent of such loans that are not otherwise disclosed in your filing as nonaccrual loans, loans over 90-days and still accruing or troubled debt restructurings. Please revise future interim and annual filings to provide this information or, alternatively if you do not hold any potential problem loans other than those in the categories already disclosed, please clearly state that fact. If you do hold potential problem loans at any period end that are not otherwise disclosed, please ensure your revised disclosure also specifically addresses any known information about possible credit problems of the borrowers. Refer to Item III.C.2 of Industry Guide 3 for guidance. As of December 31, 2010, the Company did not have any potential problem loans, other than what had already been disclosed in our filing that would have caused management to have serious doubts as to the ability of a borrower to comply with present loan repayment terms and which would have resulted in such disclosure. In future filings, a similar comment will be included as appropriate. Non-Covered Loans Held for Sale, page 58 3. We note from your disclosure that you regularly sell loans to the GSEs and that you provide customary representation and warranties to the GSEs in connection with these sales. Your disclosure also states that as of December 31, 2010, you recorded a reserve for $3.5 million related to potential losses from representation and warranty obligations, which represents a significant increase from your recorded reserve of $120,000 as of December 31, 2009. Please revise your future filings to disclose that you have been receiving repurchase requests from the GSEs and describe your process for estimating your exposure as a result of such claims. Additionally, please clarify why you record expense related to representations and warranty exposure as part of general and administrative expense, instead of as an offset to mortgage banking income. Finally, given the significant increase in your reserve, and to the extent that the volume of these repurchase requests increase or your exposure continues to increase, please revise your disclosures in future filings to address each of the following: • Provide a roll-forward of the reserve presenting separate amounts for increases in the reserve due to changes in estimate and new loan sales and decreases attributable to utilizations/realization of losses. United States Securities and Exchange Commission August 31, 2011 Page 3 • Include a discussion of the time period permitted to respond to the request, and the ramifications of a non-timely response. • Disclose the levels of unresolved claims existing at the balance sheet date by claimant. • Disclose, by claimant and loan type, the amount of unpaid principal balance of loan repurchase requests that were resolved during the period. • Include a description of your methodology and key assumptions used in determining the repurchase reserve. • Provide qualitative discussion of any trends in claimant requests or types of provisions causing the repurchase requests. • Disclose rejected claim success rates by type of claimant. • Discuss whether you have recourse back to any broker or mortgage company who sold you the loan, and if so, the types of actions, and success rates, of getting reimbursed for the claim. Also discuss how this expectation is being factored into the reserve obligation. During 2010, we received a total of five repurchase requests from the GSEs. All five of these claims were resolved without cost to NYCB. In future filings, and, to the extent that activity in this area becomes more significant, we will include a roll-forward of the Reserve for Representation and Warranty Obligations. The roll-forward will disclose both the effects of estimate changes, if any, and of utilization. We will also discuss the volume of claims, success of appeal rates, and trends and causes of claims as such activity occurs. Starting with our next filing, we will include expenses related to representations and warranty exposure as an offset to mortgage banking income, rather than as part of general and administrative expense. 4. We also note your disclosure that “there may be a range of reasonably possible losses in excess of the estimated liability that cannot be estimated with confidence” because the level of mortgage loan repurchase losses is dependent on a variety of outside factors and requires considerable management judgment. We do not believe that the term “with confidence” is consistent with the guidance in ASC 450. Please either provide an estimated range of reasonably possible loss, or provide disclosure that you are unable to estimate the loss or United States Securities and Exchange Commission August 31, 2011 Page 4 range of possible loss without the qualifier “with confidence”, along with explicit factors as to why you are unable to provide an estimate. We believe that as time goes on and you have gained more experience in resolving the claims, you should be able to provide an estimate of reasonably possible losses in excess of the estimated liability. Alternatively, if you believe the amount or range of reasonably possible losses in excess of your accrual is not material to your results of operations, financial condition and statement of operations, please state that fact. In future filings, we will revise our disclosure as requested and appropriate. As of December 31, 2010, we believe that the amount or range of possible losses in excess of our accrual was not material to our operations at that date. Liquidity, Contractual Obligations and Off-Balance Sheet Commitments and Capital Position, page 74 5. We note your disclosure that cash and cash equivalents represented your most liquid asset along with your disclosure of the amount of cash and cash equivalents at December 31, 2010 and 2009. Given the importance of liquidity to your operations, please address in more detail your additional (e.g. secondary) sources of liquidity such as liquid securities, available borrowing capacity from the FHLB, etc. Please also provide a similar type disclosure for the Parent Company. In providing this enhanced disclosure, please consider including a summary tabular disclosure of these amounts, by liquidity source, in your Liquidity disclosure. Additional sources of liquidity are deposits from the Company’s large and diverse branch network and wholesale borrowings through the FHLB-NY. The availability of these wholesale funds is generally based on the amount of mortgage loan collateral available under a blanket lien pledged to the FHLB-NY and, to a lesser extent, on the amount of available securities that may be pledged to collateralize these borrowings. As of December 31, 2010, the Company’s available borrowing capacity with the FHLB-NY was $3.3 billion. In addition, the Community Bank and the Commercial Bank combined had $653 million in available-for-sale securities. In addition to the $368 million in available dividends from its subsidiary banks, sources of liquidity for the Parent Company at December 31, 2010, included cash and cash equivalents of $82.1 million and available-for-sale securities of $6.0 million. United States Securities and Exchange Commission August 31, 2011 Page 5 Item 7A. Quantitative and Qualitative Disclosures about Market Risk Interest Rate Sensitivity Analysis, page 93 6. We note your disclosure that your model incorporates anticipated prepayments, including anticipated calls on wholesale borrowings. Please revise future filings to disclose the following: • Disclose whether you perform an analysis to validate your prepayment and call assumptions. If so, disclose what you do to validate these assumptions, how often you do this and how successful you are at estimating prepayments as compared to the actual prepayments for the period. • Disclose more clearly how the re-pricing of loans to market rates affects your prepayment assumptions. For example, if loans were to re-price by 100 basis points, disclose the impact this may have on the assumed prepayment rate of your loans. • Discuss whether one of the large drivers of going from a negative one-year gap at December 31, 2009 to a positive one-year gap at December 31, 2010 was driven in part by changes in prepayment assumptions. • We note your disclosure that for loans and mortgage-related securities, prepayment rates were assumed to range up to 22% annually. Please clarify the range of assumptions used for each type of asset and liability and consider discussing a weighted average prepayment assumption if the range is wide. In future filings we will revise our disclosure in a manner similar to the following: We perform an analysis to validate our prepayment assumptions for our multi-family and commercial real estate loan portfolios. On a monthly basis, we review our historical prepayment rates and compare them to our projected prepayment rates. We continually review the actual prepayment rates to ensure that our projections are as accurate as possible since prepayments on these types of loans are not as closely correlated to changes in interest rates as prepayments on single-family residential loans would be. In addition, we review the call provisions in our borrowings and investment portfolios and, on a monthly basis, compare the actual calls to our projected calls to ensure that our projections are reasonable. As of December 31, 2010, the impact of a 100-basis point decline in market interest rates would have increased our projected prepayment rates by approximately 22%. The change from a negative one-year gap at December 31, 2009 to a positive one-year gap at December 31, 2010 was, in part, attributable to changes in prepayment rate assumptions. Prepayment rate assumptions on multi-family and commercial real estate loans were increased in the December 2010 analysis primarily due to an increase in actual prepayment rates at the end of 2010. However, the Company does not believe that changes in prepayment assumptions were a United States Securities and Exchange Commission August 31, 2011 Page 6 “large” driver, as other factors also contributed to the change. Such factors included an increase in loans held for sale and a decrease in certificates of deposit expected to mature or reprice within one year. At December 31, 2010, the range of prepayment rate assumptions used for each asset and liability were as follows: 19% to 22% for mortgage-backed securities; 16% to 18% for multi-family and commercial real estate loans; and 0% for our borrowed funds. Item 8. Financial Statements Note 2: Summary of Significant Accounting Policies Loans, page 102 7. We note your disclosure on pages 50 through 52 regarding prepayment penalties on multi-family and CRE loans. We also note your disclosure on page 80 that the level of prepayment penalty income will vary based on a number of factors and is difficult to predict. Please revise this footnote disclosure in future filings to discuss in greater detail your accounting treatment for prepayment penalty income and the assumptions that go into recognizing the amount, including any back-testing you perform to validate the assumptions utilized. For example, we note your disclosure on page 79 that an increase in intermediate term-rates triggered an increase in refinancing activity, which in turn prompted an increase in prepayment penalty income on your multi-family and CRE loans. Discuss the reasons why prepayments would increase during periods of rising rates. Further, please tell us the specific accounting guidance you rely on to support your accounting policy. Prepayment penalty income is recorded only when cash is received. Accordingly, there are no assumptions that go into recognizing prepayment penalty income. The amount of the prepayment penalty is determined by the prepayment penalty percentage noted in the loan documents multiplied by the balance of the loan at the time of the prepayment. Prepayment penalties may increase during periods of rising rates (or periods when rates are expected to rise) because our borrowers may opt to lock in a lower rate at such times, rather than take the risk of refinancing in the future when interest rates could be higher. 8. We note your disclosure that you charge-off loans, or portions of loans, in the period that such loans are deemed uncollectible. You state that collectability of the loan is determined through an estimate of the fair value of the underlying collateral and/or assessment of the financial condition and repayment capacity of the borrower. Please expand this disclosure to discuss the time period that this assessment is typically made after classifying the loan as impaired and obtaining an updated appraisal and making an assessment of the borrower’s repayment capacity. As part of your revised disclosure, please disclose whether there is a maximum past due time period that you would charge-off a loan, or portion thereof. Refer to ASC 310-10-50-11B(b) for guidance. United States Securities and Exchange Commission August 31, 2011 Page 7 In future filings we will expand and revise our disclosure as follows: The Company charges off loans, or portions of loans, in the period that such loans, or portions thereof, are deemed uncollectible. The collectability of individual loans is determined through an assessment of the financial condition and repayment capacity of the borrower and/or through an estimate of the fair value of the underlying collateral. Generally, the time period in which this assessment is made