New York Community Bancorp Inc. (NYCB)
February 12, 2013 1:00 pm ET
Joseph R. Ficalora - Chief Executive Officer, President, Director, Chief Executive Officer of New York Community Bank, Chief Executive Officer of New York Commercial Bank, President of New York Community Bank, President of New York Commercial Bank, Director of New York Commercial Bank and Director of New York Community Bank
Moshe Orenbuch - Crédit Suisse AG, Research Division
Moshe Orenbuch - Crédit Suisse AG, Research Division
So good afternoon, everyone. Thanks for joining us. We're very pleased to have with us the management of New York Community Bank. New York Community is a leader in the multi-family lending in the New York City area, with a somewhat unique strategy, an aggressive acquirer of deposit franchises in order to fund its multi-family lending, including the branches of AmTrust down here in sunny Miami. It's maintained superior credit quality over multiple cycles and is gaining share of multi-family lending. It's also been building up its -- the mortgage banking operations that it acquired in the AmTrust transaction. We're very pleased to have with us Joe Ficalora, President and CEO; as well as Tom Cangemi, Senior Executive Vice President and CFO. And after their presentations, they'll take our questions.
Joseph R. Ficalora
If you're looking for NYCB, for those of you that might be in the wrong place. Okay. New York Community Bancorp ranks among the top 25 bank holding companies in the United States today. And the metrics that we are providing you with indicate that at $44.1 billion, we are the 20th largest bank holding company in the nation today. Our deposits at $24.9 billion, represent a significant growth year-over-year. And then that was partially as a result of the Aurora transaction that we did. But we are located in 5 states across the country. And we rank 23rd with regard to deposits in the United States.
Multi-family loans, we have $18.6 billion at the end of the year, and that makes us a major portfolio lender with regards to multi-family. And our market cap at $5.8 billion, year end, puts us at about 18th in the nation with regard to overall valuation.
Total return on investment to our shareholders, going back to our beginning, is in excess of 3000%. On a comparative basis, I believe banks generally have a total return to shareholders in the range of about 200%.
These are the 5 states that we're located in. We have today -- in fact, today, we opened a new branch in New York. So that's -- it's 275 branches in 5 states, as indicated there.
Our fourth quarter of performance highlights are listed on this page in a very concise way so that it's easier for people to pick up the differences year-over-year. And as you could see there, our earnings for the year exceeded $500 million in 2012, our earnings per share at $1.13 and our total return on average tangible stockholders’ equity exceeded 16%. So the net interest margin is at 3.21% and our efficiency ratio is at 40.75% for the year just ended.
Our performance was equally solid in the fourth quarter. As you can see, our earnings was at about $123 million for the quarter. Our earnings per share was at about $0.28. Our return on average tangible assets was at 1 24%. And our return on average tangible stockholders’ equity was at 16.6%. That gives us a net interest margin for the last quarter of the year of 3.15% and an overall efficiency ratio of 43.37%.
So the performance highlights. Our loans, net to total assets was at 71.5%. As you could see, pretty consistent year-over-year comparisons in all of these metrics, accepting that our deposits assets actually went up fairly significantly to 56.4% versus 53.1%, our core deposits' at 63.3% is actually down to total deposits. And our wholesale borrowings to total assets was 29.6% down, fairly substantially from 32%.
Our asset quality measures continue to compare favorably with those of our industry as a whole. I think I've said this in various presentations for 4 plus decades, our comparisons have been significantly better than our industry as a whole and very, very, very consistent. If there's anything about our business metrics that are truly consistent, it's our ability to lend large amounts of money and take very small amounts of loss, even in credit cycle turns. So over the course of 4 decades, we've demonstrated this cycle by cycle by cycle. The inevitable credit cycle, which in fact -- I guess, I was given an article that was written in 2002. And in 2002, of the top 100 banks, the worst bank in the nation was JPMorgan Chase, which I don't think many of you would remember back in 2002. But we were the second best performing bank in the nation in 2002. And I guess if they were to do the numbers today, we would come out pretty well and pretty close to the same place.
The good news about our business model is that it's very consistent. So as you can see here, our nonperforming at 0.96% is very favorable. Actually, it's probably easier if I look this way. And our comparative numbers in the cycle and out of the cycle are generally speaking the same, accepting that the differentiation is greater during difficult periods. It widens during periods when most banks lose money, we lose less.
Our nonperforming assets to total assets at 0.71% also compares extremely favorably to others. And our net charge-offs to average loans at 0.01% compares very nicely to 0.27%.
So, tangible stockholders’ equity to tangible assets, 7.79%, a year ago it was 7.95%. And our total stockholders’ equity at $3.2 billion compares to $3.1 billion a year earlier.
Our leverage capital ratios likewise are very strong. As you could see at 12/31/12, the Community Bank is at 8.33%, the Commercial Bank, 11.59%. And that is further enhanced by the Tier 1 capital ratio and the total capital ratio of 12.50% for the Community Bank and 13.22%, total capital ratio. And for the Commercial Bank, it's 16.64% and 17.24%.
So a successful business model. What is our business model? Over the course of many decades, our concentrated asset is multi-family, and we've talked about this many, many times. So $18.6 billion of multi-family loans or 68.2% of total non-covered loans held for investment at 12/31.
Our net charge-offs represented 0.13% of average loans for the entire year of 2012. And that's a year-over-year improvement of about 22 basis points.
Our residential mortgage banking. Since acquiring that particular line of business in the AmTrust transaction, we have originated $29.5 billion of one-to-four family loans for sale and generated mortgage banking income of $455.3 million.
Our efficiency ratio has consistently ranked in the top 1% of all banks and thrifts and was 40.75% in the year 2012. We ranked in the top 1% probably for the entire time that we were a public company, and that goes back to '93. And certainly, many of the years that we were a public company, we, in fact, were the most efficient bank, not all of them but many of them.
Growth through acquisition. We completed 10 acquisitions from 2000 to 2010 and assumed $2.2 billion in deposits from the Aurora Bank transaction that we did in 2012.
So our multi-family loan production. 60.9% of the rental housing units in New York City are subject to rent regulation and therefore feature below market rates. That is the niche within which we lend. But our niche is further distinguished by many other particular attributes of the property owners themselves. Many reasons why the multi-family product that we lend on is different than that which has been lent on by others that in fact went out of business, Bowery, American,Greater. Banks that were multi-family lenders in other areas in many cases went out of business because they lend differently. So just because a person tells you they're doing multi-family loans, it doesn't mean they're doing what we do.
So rent-regulated buildings are more likely to retain their tenants and therefore, their revenue stream in a downward credit cycle. But if you're a lender who lends 3x the actual cash flow in the building, that's not going to matter. So that's why many, many, many lenders lose an awful lot of money when the cycle turns because their speculation is that the footprint is going to trade for more than they paid for the building. And in actuality, that does not happen in a negative cycle.
So our focus on multi-family lending in this niche market has contributed to our record of asset quality. This is with consistency for more than 40 years. This is not a new phenomenon for us. The way in which we lend today is very much the same as the way we lent many decades ago.
So our multi-family loans are less costly to produce and service and this compares very, very favorably to other types of loans. The ability to generate the same dollar value, let's just use multi-family, the $18.6 billion portfolio that we have in multi-family. We have far fewer people that have to service it. We don't have tens of thousands of loans that we're virtually constantly in communication with customers on. We don't have escrow for paying taxes and paying insurance. We have a significantly lower cost of origination. We have a significantly lower cost of free financing. We have a significantly lower cost of disposing of the asset should something go badly. So the reality is, that the way that we do our multi-family lending is with a consistency that actually is very cost-effective but also avoids significant loss.
Our multi-family loans are less costly to produce and service than other loans, and therefore contribute to our superior efficiency. That's fundamental. The economics of being in the business that we're in produces a much more efficient operating bank. It costs us less because we have fewer people. It costs us less because we have fewer burdens, economic burdens, things that we have to do in dealing with third parties. And the reality is that our particular niche has, over the course of long periods of time, performed with such consistency that the very people that we've trained to do the work are able to do this in a very cost-effective manner.
So this gives you an idea of the multi-family portfolio from 2008 to 2012. Obviously, a very difficult period, during which most banks had significant change in their loan portfolios. To a great degree, many of the loan portfolios of other banks actually contracted. Our portfolio has, with some measure of consistency, grown over the course of this period. So the percentage of non-covered loans held for investment is at 68.2%. Non-covered loans are the loans that we've acquired in the AmTrust deal, and actually, the covered loans are the loans that we acquired in the AmTrust deal, and those loans have been paying off over the course of the years since. And lo and behold, that percentage number will continue to go up as those loans continue to pay off.
So the average principal balance in our portfolio on multi-family is $4.1 million. Our expected average weighted life today is at 2.9 years. So it's just in the 3-year range, which is really at the low end of this range. Over the course of many decades, we've averaged between 3 and 4 years, and we are averaging a shorter life loan today, last year, obviously, even in the year '11. 2012, we originated $5.8 billion in multi-family loans for our portfolio. For fourth quarter, we originated $1.8 billion and the percentage of our multi-family loans located in the metro area is roughly 93%.
Our commercial loans are very much the same. The documents and the requirements are very much the same in multi-family. To a great degree, many of the people that owned properties in our multi-family also owned properties in our commercial portfolio. In many cases, they're mixed-use properties, not all, but in many of the cases they are. The percentage of non-covered loans held for investment in our commercial portfolio is at 27.3%. The average principal balance is $4.6 million and the expected weighted average life is 3.4 years. Obviously, just a little longer than our multi-family.
The 2012 originations' at $2.4 billion and our fourth quarter originations are at $664 million. The percentage of credit loans, CRE loans, located in the metro New York area, 96.1%.
So our CRE loans are typically collateralized by office buildings, retail centers, mixed-use buildings, mixed-use would be rent controlled as well as retail, multi-tenanted industry properties.
This is another depiction of our nonperforming loan portfolio, a year-over-year improvement. Non-performing loans to total loans is down by 19 basis points. The nonperforming assets to total assets is down by 22 basis points. So as you could see in the yearly depiction, a pretty consistent improvement.
Now this chart shows the net charge-offs to average loans. If you go back to the prior credit cycle, the prior credit cycle took out banks such as Bowery, American, Greater, Dollar. Several banks that had been multi-family lenders went out of business during that cycle. That's how bad that cycle was. Unemployment insurance was over -- unemployment in New York City was over 12%. The reality is that vacancy rates were extremely high. Properties were defaulting throughout the city of New York. And during that period, as you could see there, the losses that were being taken by other banks amounted to 540 basis points between 1989 and 1993. And during that period, when other banks lost 540 basis points, we've lost 17 basis points. And if we went back to '88 and '87 and '86 and '85, I think we lost 18 basis points in total. So the reality is that over a long period of time, we lost very, very, very little.
Now the current credit cycle running from 2008 to today, the end of 2012, we lost 85 basis points. But during that period, the rest of the banking industry lost the equivalent of 1039 basis points in that same period. So these are comparisons of us to other banks. And it demonstrates further that over long periods of time, we lose substantially less than other banks lose on assets. This is not just multi-family. This is on all assets. So the reality is that other banking business models have a greater demand on their capital than we do.
So during periods when losses become excessive, banks lose their earnings and then they lose their capital and then they go out of business. So in every cycle turn, that has actually happened. So when we talk today about stress testing into the future, we're talking about trying to determine what our bank is likely to lose in its capital. How much capital does a bank need to sustain itself through a cycle? And the reality is that through multiple cycles, not just the 2 depicted here, but through multiple cycles over many decades, we in fact have not lost more money in a cycle turn than we earned in a given period. So we never had to go to capital to cover the losses on our loans. Our loans, in fact, even when they lose money -- lose such a small amount of money that we cover it with current earnings. And therefore, we don't have a demand on capital. Historically, it has not happened. So the reality is we are very, very different than the banking industry as a whole. And time and time again, the numbers prove that. That's not what I say, that's what the numbers say.
So when we think about our ability to go into this future period and deal with adversity that may come, we're very well-positioned to deal with that adversity. And should that adversity be worse than, let's say the last few years, the reality is that many of the assets that we lost money on, the 85 basis points that we charged-off, many of the assets that we lost money on were the assets that we acquired in deals. So the residue of deals that we did resulted in us having some assets in our portfolio that were more vulnerable to a cycle turn. And therefore, embedded within the 85 basis points, we lost some money on those assets that no longer exist. So our portfolio today is better situated because our portfolio today is more consistent with our business model. The assets in our portfolio today are significantly greater concentrated in the assets that we have generated. So a cycle that may come into the future period would be a cycle that would have less loss, based on the fact that the assets that would be subject to loss would be more consistent with our business model.
So this slide is quite telling. But if we went back to the prior cycle or the cycle before that, it would likewise be the same. Be more likely '89 or '87 through '93 period than it would be like the period that has just been depicted.
So non-performing loans to total loans. As you could see here, the last credit cycle, we in fact continuously had better performance metrics than our industry as a whole. Likewise in this credit cycle, we've had significantly better performance metrics than our industry as a whole. And we would expect that to be even more so the case in the period ahead.
For the 12 months ended December 31, and this compares periods '89 through '93 and 2008 through 2012, and you see the differentiations there between the non-performing loans and the net charge-offs. And certainly, it continues to depict a significant benefit that our business model has provided us.
So the quality of our assets reflects the nature of our loan lending niche and our strong underwriting standards. This is so consistent, so different than our peers. The methods that we utilize are more committee-oriented than they are management-oriented. So many people talk about the high-risk lending that banks do, that they incent their lenders by giving them more money for taking more risk. In other words, put more dollars down and you get paid more. The idea that we do not do that has been very consistent in contributing to the better performance metrics that we actually have.
So conservative underwriting. Conservative loan-to-value ratios, conservative debt coverage ratios, minimums are at the 120% except for commercial real estate, which is typically at 130% or above. All these numbers are the low-end numbers, although there could be some reason why there would be a momentary differentiation, there would have to be a high level of expectation that's resolving very quickly.
Multi-family and CRE loans are based on the lower of economic or market value, typically the appraisals that we get. And we do multiple appraisals. So we get appraisals that are highly professional from outside the company and then we reappraise them inside the company. And occasionally, we even get a third appraisal.
Active board involvement. All loans originated for portfolio are approved by the Mortgage or Credit Committees. Even the small loans are approved by the Committees. Even if we don't do all the detail work, if there's any loan in a detailed list of loans that are being approved by management that any member of the committee wants further clarity on, obviously he gets it before it goes through.
A member of the Mortgage/Credit Committee participates in inspections of multi-family loans in excess of $4 million, and CRE and acquisition development loans in excess of $2.5 million. That is very consistent for us. Could there be a reason why we go look at something that is at a lesser number? Sure, there could be and on occasion we do. We're out anyway looking at properties, we may very well look at something less. Certainly, if there is a new property owner, there is more scrutiny given to that particular property, especially if that is a refinancing of that property by that particular property owner.
Multiple appraisals. As I mentioned earlier, all of our independent appraisals are MAI appraisals. They are all coming from an approved list of qualified appraisers. So we're very diligent about that. We spend a lot of time ensuring values. And that's how we outperform. By doing it right in the first place, we have significantly better metrics, when in fact the cycle turns or there is a particular problem with an individual or a particular problem with the community, since we did the loan right in the first place, we're always better off.
So we're risk-averse. Non-covered loans held for investment: Multi-family is 68.2%, CRE 27.3%, ADC loans, that's 1.5%. One-to-four family loans, that's 0.7%. So our portfolio does not have what you would find in most portfolios of banks. We don't have house loans. Less than 1% of our loans outstanding are house loans. Commercial and industrial, 2.2%. So as you can see, we are very concentrated in asset class that we lose very little money on. Our CRE loans, we actually lose less money on those loans than we lose -- by the way, are we over the time here or is that clock just wrong? 10 minutes? Okay.
All right. So the covered loan portfolio. These are the loans that were covered in the deal with the FDIC. As you can see, we started that out at about $4.7 billion. That was 11.1% of our overall portfolio. And as you can see there, today, 12/31/12, it's at $3.3 billion or 7.3% of our total portfolio.
So residential mortgage banking. Our residential mortgage operations is a leading aggregator. I think we're 15th in the nation. Our history, we acquired this in the AmTrust transaction, as I mentioned in the end of December of '09. We virtually closed down those operations. We did a detailed analysis of what was going on, what was in the portfolio, how the loans are being generated. We dialed everything back to what we believe to be a more conservative method of doing these loans. Even though we are not typically portfolio-ing these loans, although recently we've begun to portfolio some jumbos. It's a very de minimis amount. And the reality is that we're typically very concerned about creating risk. And even though we're selling all of these loans, we still want to be sure that we're doing this in a way that has a very, very low likelihood that we would ever see that loan again.
So we rank among the top 15 aggregators of one-to-four family loans for sale since January of 2010. And really, we didn't start doing this with any degree of earnest until the second half of '10. We've actually had a one-to-four family originations of $31.8 billion or in excess of 100,000 one-to-four family loans.
The credit quality is 99.81% of all funded loans were current. A limited -- and that includes the activities following Sandy and any of the other events over the course of year end.
The limited repurchase risk, the company's loan repurchase exposure is comparatively low, as we benefit from the industry's more stringent credit and documentation standards, which have been in effect since we entered the residential mortgage banking business in the 2010 period.
So obviously, the market has been more conservative. The valuations are more favorable. And we are certainly comparatively more favorable than the market generally. So the risks that are in the portfolio that we've created are significantly less. Our refinancing, we originated $31.8 billion. We refinanced a great share of that number already. So the quality of our portfolio is extremely high. I don't know if it says it here, but I believe that our overall LTVs, despite the diminished value of the marketplace, range in the upwards of 69 percentile. Our FICOs range in the 777 range. So we are being very, very cautious about what we're originating, even though we are selling off a huge share of these loans.
So the company's loan repurchase exposure is comparatively low, and that has been based on the methods that we've been following. The benefits since the inception of the mortgage banking business, we have generated mortgage banking income of $455.3 million, including $178.6 million in 2012. Our proprietary mortgage banking platform gives us the capacity to expand our revenues, market share and product line. We, in fact, were servicing in excess of $30 billion from the platform that we have today. Our mortgage banking income has supported the stability of our return on average tangible assets, even as market interest rates have continued to decline. In a declining interest rate environment, mortgage banking income and prepayment penalty income have contributed to the stability of our return on assets.
As you could see here, running from the first quarter of '11, each and every quarter through the fourth quarter of '12, our return on average tangible assets has ranged between 1.34% and 1.24% and moved very little quarter by quarter by quarter over the course of that period.
Our prepayment penalty income has been extraordinarily robust. We had a very slow period in '09. And then the beginning of '10, we told everybody that we would expect that our prepayment income would go up and it would be robust in the period ahead. And we talked about '11 and '12 and I believe '13. And as you could see, we've had record levels of production in prepayment income.
And the mortgage banking income, as you could see there, has contributed very nicely to the bottom line of the company. So our average 10-year Treasury rate has moved down, as we're all aware. And despite that declining rate, which means that the rate we're earning on assets has been going down, we still have been able to maintain a return on average tangible assets that ranges very nicely between that 1.34% and 1.24%.
So our mortgage banking operation generated 60.1% of non-interest income and 12.3% of total revenues in 2012. And at or for the 12 months ended 12/31/12, one-to-four family loans funded $10.9 billion in the year just ended. Our percentage sold to GSEs, 99% of those loans were sold. The average FICO, 771. The average loan-to-value ratio, about 70% and the 2012 mortgage banking income from originations, $193.2 million. And these loans, they feature, loans can be originated/purchased in all 50 states, loan production is driven by our proprietary real time, web accessible mortgage banking technology platform, we in fact have banks and mortgage brokers and others originating on that platform; our proprietary business process securely controls the lending process, while mitigating business and regulatory risks. As a result, our clients cost-effectively compete with the nation's largest mortgage lenders. We have across the country 900 plus approved clients, including community banks, credit unions, mortgage companies and mortgage brokers. The vast majority of loans funded are agency-eligible one-to-four family loans, well over the vast majority, almost all of them. 100% of loans funded are full documentation, prime credit loans.
Our efficiency ratio. The franchise expansion has largely stemmed from mergers and acquisitions; we generally do not engage in de novo branch development. So our efficiency ratio compares over the course of our entire public life very favorably to the industry. So whereas others in the industry, in order to make $1, spend $0.66, we spend $0.40. And over the course of our entire public life, we've always been in the top 1% of the banks operating in this country. So our efficiency ratio is a consistent positive metric.
Multi-family and commercial real estate lending are both broker-driven, with the borrower paying fees to the mortgage brokerage firm. We don't pay those fees. Products and services are typically developed by third-party providers. And the sale of these products generates additional revenues for us. 40 of our branches are at actually in-store, very efficient vehicles through which to provide extra banking hours of service to our customers at a low cost. We acquire our deposits primarily through earnings-accretive acquisitions rather than by paying up in the given marketplace. So typically, the banks that we acquire are paying more for deposits than we are.
And this is a depiction of the various transactions that we've done over the course of time. As you could see, some of them were larger than others. We actually doubled ourselves 3 times in a row, running from November of 2000 through October of 2003. And then we did a whole series of, as you can see, smaller deals. It would be our expectation that in this environment that we would prepare ourselves as best as we can to be regulatorily approved to step over the $50 billion mark. So the specific demands require that we spend millions of dollars and great effort in preparing ourselves to be bigger than $50 billion. So it is our expectation that when we're ready, we will bring a large deal to the regulators for their consideration. And that is something that all banks are doing today. They're all required to go to their regulator and, in some cases, take months in order to get that approved.
This is our deposit mix and how it's changed. This is our loans. And as you could see, as we do deals, it does have a direct impact on the growth in deposits and the growth in loans. Our total return on investment. This slide is the slide that tells the story. Over the course of our public life, if a person purchased 100 shares of our stock between '94 and 2004, we split our stock 9 times, which means if they purchased 100 shares, we gave them 2,700 shares. So for every investor in our stock, they've gotten a substantial enhancement to their total return. So the basis for all of that stock is about $0.93 today.
So I see the clock has run out. I know that we have a breakout session. So I certainly would invite you all to come to see us. We're going not far, right?
Moshe Orenbuch - Crédit Suisse AG, Research Division
Not far. The breakout session will be in the Hong Kong Suite just around the corner. In about 3 minutes in this room, you will have East West Bank Corp. of America in Salon 1 and NYSE Eurotech's in Salon 2. Please join me in thanking Joe. Thank you.
Joseph R. Ficalora
Thank you, all.
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