NYB - New York Community Bancorp, Inc.

[Junto]

New York Community Bancorp. Inc is the 21st largest bank holding company across the nation with $40.6 billion in assets. NYB has 276 branches across the nation (New York, New Jersey, Ohio, Florida, and Arizona). NYB is most concentrated in the Metro NY area with 157 branches.

 

I am long NYB and am very bullish at these price levels. I have owned, bought and sold, NYB for several years and continue to feel that it is one of the most stable banking institutions in the country. I have been buying lately with both hands. It is currently trading below book value and about 175% of tangible book value. The price to earnings is 10.23 LTM. Dividend is $1.00/share/year with $0.25/share quarterly payments yielding 8%+ at current levels.

 

This is a conservative bank. Historical loss history is amazing and non-performing assets are equally as good when compared to peers. International exposure is non-material for this regional bank. See their recent investor's presentation (http://ir.mynycb.com/file.aspx?FID=1500037318&IID=1024119). They are multi-family lenders focusing on rent regulated buildings in the New York City area. Recent FDIC assisted transactions have expanded their footprint, but at their core they remain the same focused bank with a history of successful acquisitions and growth. They operate a very efficient bank given their size.

 

The stock has been battered lately due to concerns about the dividend going forward and some misconceptions regarding the regulatory agencies overseeing the bank. See a recent PR piece/interview with the companies CEO Joseph Ficalora (http://bit.ly/qlU3RB).

 

KBW has it on a regional bank buy list (http://bit.ly/r1gYi4).

 

The stock should rebound back to $16. This is not a growth stock story but a solid company providing a solid dividend with a positive outlook over the next several months in both margins and the ability to grow its loan portfolio. I will happily take the dividend yield with the 30-40% upside potential in capital appreciation.

 

Some Key Graphs to look at:

 

http://2.bp.blogspot.com/-TNPkfmIulgg/TurNyn6nOPI/AAAAAAAAAWg/BsEbjCCZDkA/s640/nyb+-+risk+rating.jpg

 

http://2.bp.blogspot.com/-sNUBOrI26qc/TtqfFL7e4SI/AAAAAAAAAOs/1SecaCeE9lk/s640/nyb+loans.jpg

 

http://4.bp.blogspot.com/-By3L5Yd9434/TuGbMrfOjhI/AAAAAAAAARM/eGLwEzGVAns/s640/NYB+loan+detail.jpg

 

Asset quality has continued to improve through September.

 

Please note the post series on my blog:

Post 1: $NYB - http://thoughtsofacommunitybanker.blogspot.com/2011/12/nyb-new-york-community-bank.html

Post 2: Asset Quality - http://thoughtsofacommunitybanker.blogspot.com/2011/12/assets-of-new-york-community-bancorp.html

Post 3: Asset Quality continued - http://thoughtsofacommunitybanker.blogspot.com/2011/12/nyb-new-york-community-bancorp-asset.html

Post 4: $NYB - Let's Look at Yields, Costs, and Liabilities - http://thoughtsofacommunitybanker.blogspot.com/2011/12/nyb-lets-look-at-yields-costs-and.html

Post 5: $NYB Calculating Intrinsic Value: http://thoughtsofacommunitybanker.blogspot.com/2011/12/nyb-calculating-nyb-intrinsic-value.html

[Grenville]

Hi Junto,

 

Thanks for the writeup and the link to the interview. I had come across NYB before when reading an interview of Irving Kahn and his son. They are big investors in the bank. I do think they have a unique model as described in the interview.

 

I did a quick 10 year DCF analysis of the bank earnings with a 7x earnings terminal value. I assumed 5% decline in earnings over the next five years followed by 0% earnings growth for years 6 to 10. I assume a 7% discount rate and I'm using an estimated earnings for 2011 of 450mln. (2x 1H 2011 earns)

 

My valuation:

10yr DCF: 2.7bln

Terminal : 1.3bln

Tangible book: 2.8bln

 

Total value: 6.8bln

shares out: 437mln

 

Conservative per share value: 15.56

current discount: ~20%

 

60% of value buy point: 9.33

 

[Grenville]

Junto,

 

You should also check out the VIC writeup on NYB by grumpy922. He highlights plenty of alarming stats. It provides some interesting points that deserve checking. Let me know if you have trouble finding it.

 

-grenville

[Junto]

Grenville - I am not on VIC, but would certainly appreciate if you could drop me an email on it if you don't want to summarize on this board. I appreciate your rough numbers. I will post more quantitative analysis on here this weekend when I have them in front of me (at the office now). I think you are conservative with your projections and terminal value.

 

 

[Grenville]

Grenville - I am not on VIC, but would certainly appreciate if you could drop me an email on it if you don't want to summarize on this board. I appreciate your rough numbers. I will post more quantitative analysis on here this weekend when I have them in front of me (at the office now). I think you are conservative with your projections and terminal value.

 

Just sent you a PM

-Grenville

 

 

[Junto]

I am expecting earnings of $1.10 for 2011 on Net Interest Income of $1.2 billion, provisions of $81MM, Non-Interest Income of $210MM, Non-Interest Expense of $592MM. Net Income works out to $481MM.

 

I do see mortgage revenues increasing in Q3 due to mortgage rates dropping below 4% on 30 year fixed rates among other very attractive opportunities. This is an undervalued part of the business that made the Amtrust acquisition much more attractive. Revenues in 2011 are down dramatically from 2010 levels.

 

I am much more bullish on the long-term earnings prospects than your analysis. Based on my estimates on Net Interest Income and expenses moving forward, earnings should jump in 2014-2015 due to increased interest rates and stabilized costs. Yields on the deposit side always trail loan yields. I estimate around $1.30-$1.35 would be anticipated starting in at the latest in 2014. Based on my safe case estimates, the price at $12.00 is putting a roughly 30%-40% discount.

 

Grumpy922 makes the argument that the loan loss reserves are marginal when compared to the changing loan portfolio over the last several years. While agree that the changing loan portfolio adds new dynamics, it does not immediately correlate to requiring significant increases in reserves for the portfolio. FAS 5 and 114 models are required for all banking institutions and are reviewed rigorously by the FDIC during examinations. I know firsthand as I am a commercial lender working at a troubled institution.

 

The primary driver for earnings going forward with a bank like NYB is margins and provisions. 

 

Margins have contracted as yields on loans and securities have started decreased over the past quarters faster than yields on deposits. The largest opportunity for NYB is on decreasing its Other Borrowing costs with the FHLB of New York and Repos. This does not appear likely until 2016 or when rates rise significantly as nearly all of the advances are now callable by the FHLB/counterparty (pg 132 of 10-k).  We could see another option to prepay by NYB to reduce costs over the next two years as we have seen them do in the past. C/D’s should continue to see decreases as the year progresses as a vast majority were repricing in 2011 and rates have fallen further from 2010 levels.

 

Asset quality is always in the details and I agree with Grumpy922 that in banking it that the tails generate the largest losses. The number of non-performing loans and their sizes are manageable. There are no huge projects with overbearing exposure.

 

Non-Accrual Loans:

June 2011:

CRE: 60 loans totaling $105,167,000

Multi-Family: 134 Loans $304,695,000

 

December 2010:

CRE: 65 loans totaling $162,400,000

Multi-Family: 131 Loans $327,892,000

 

Five largest as of June 2011:

Total $124,452,000

Three Multi-Family, Two Construction Related. LTV ranges from 83-98% on Late 2010, Early 2011 appraisals. Total reserves $5,905,000 and are specifically allocated to one of the construction loans.

 

The multifamily market continues to be strong across the nation given the housing crisis and subsequent tightening of lending standards.  Article from April: http://bloom.bg/pG5jeD

July Beige Book for New York Fed: http://bloom.bg/pBcu4a

 

History has indicated that NYB has conservatively underwritten their lending transactions which provide additional comfort from a qualitative level. The largest challenge for all banks without seeing the loans firsthand is understanding management and their credit underwriting culture.

 

Ratios and dollar amount of Non-performing assets have been declining through June. It is hard to paste tables into this message board format:

 

June, 2011 Non-Performing, Non-Covered: $502,981

December 2010 Non-Performing, Non-Covered: $624,431

December 2009 Non-Performing, Non-Covered: $ 593,273

% of total non-covered loans:

June 2011: 2.05%

December 2010: 2.63%

December 2009: 2.47%

 

Tangible Book Value continues to grow:

2007: $5.50

2008: $4.91

2009: $6.52

2010: $6.91

6-2011: $7.00

 

Book Value has been stable, and is growing:

2007: $12.92

2008: $12.23

2009: $12.39

2010: $12.69

6-2011: $12.71

 

Trading Ranges:

2007: $15.80-$19.87

2008: $10.31-$22.00

2009: $7.68-$14.81

2010: $14.24-$19.33

6-2011: $11.48-$19.24

 

 

[Grenville]

Junto,

 

Thanks for the additional details and color!

[Grenville]

Hi Junto,

 

Can you recommend a good book that goes through bank accounting? I want to understand how things move through the statements especially things like provisions, charge-offs and non accrual loans.

 

 

[Junto]

This is one that I have read through and like:

 

Bank Management by Timothy Koch: http://amzn.to/pNkENx

 

It is dry and is written from a bank employee/manager level.  Timothy Koch is a good author to look for on these bank level details. I have the 2005 version.

 

Here are some simple details:

 

Beginning Allowance for Loan Losses

-Charge Off

+Recoveries

+Provisions

Ending Allowance for Loan Losses

 

A bank can use FAS 5 until the loan has been deemed impaired and it will do a more detailed analysis into FAS 114. If you want to do additional research, look for troubled debt restructuring (TDR) along with the FAS 5 and FAS 114. There has been a lot of changes in this area since 2008. For instance, from a community bank level, prior to these items being in place, many smaller banks used a bucket reserve system (5% Watch, 15% Substandard, 50% doubtfull), the new guidelines and regulations have made the reserves much more property/collateral specific which can either help or hurt you. In NYB's case, this has likely helped them given the continued strength and growing multi-family sector of the real estate marketplace. 

 

I have not seen books on the FAS 5 and FAS 114 specific detail but have learned a lot through significant first hand experience.

[Grenville]

Junto,

 

Thanks for the response! Very helpful.

[Junto]

Made some edits to the first post on the board.

 

Would like to hear anyone else's thoughts on NYB? Anyone else been digging into this bank?

[Junto]

Ticker has changed to NYCB but still a great value in the low $14 dollar range. I sold a while back and have jumped back in yesterday at $14.30 average.

 

Bank announced acquisition of Astoria (AF) in October last year. As the price has come down, value for the combined organization has gotten attractive long term for growth and current term. Currently, it has nice yield and risk characteristics.

[thepupil]

disclaimer: I'm not a banking expert and don't know this name well

 

Anecdotal hearsay:

 

- I've spoken to at least 3 different people who run bank funds that are/have been short NYCB because of the duration risk / concentrated credit risk they take (but mostly duration)

 

- back when I traded bonds (2011-2013), they were almost indiscriminate buyers of duration

 

Based on the above, I imagine the flattening yield curve may be particularly tough for them. Like I said, I've done no work and am just relaying what I've heard 2 or 3 times over the past year or so.

 

Also, is this at 1.7X pro-forma TBV (I see NYCB at 2X, AF at about 1X and pro-forma at 1.7X, right?).

[Nnejad]

Not really an expert on the name either, but my understanding was the exact opposite of what you said regarding duration. They're predominantly in adjustable rate mortgages with maturities/re-pricings occurring in less than 5 years.

[oddballstocks]

Here's our Maturity & Duration analysis report on the bank (attached).

 

A few thoughts based on this report.  First off they have really nice residential loan growth at 12% compared to state peers at 7.7%.  Looks like most of their growth is in residential loans.  Deposit growth is flat.

 

In terms of loans they're further out the yield curve with 70% of their loans maturing in 3-15 years.

 

They've gone long on bonds as well with 54% maturing in 5-15 years.  For the stretch on the yield curve they're only earning 3.89% on their assets, slightly above average but not much.  Another data point is almost all of the bank's loans are multi-family residential and commercial non-owner occupied.  I wonder if these are shorter term loans amortized over a long period with a balloon?

 

The bank has extremely efficient operations, and I think the Astoria purchase is great for them.  This bank is known for their sizable dividend.  When you look at their dividend yield plus their book value growth they have nice return characteristics for such a large bank.

Maturity_and_Duration_Analysis_-_New_York_Community_Bank.xlsx

[Guest Schwab711]

Here's our Maturity & Duration analysis report on the bank (attached).

 

A few thoughts based on this report.  First off they have really nice residential loan growth at 12% compared to state peers at 7.7%.  Looks like most of their growth is in residential loans.  Deposit growth is flat.

 

In terms of loans they're further out the yield curve with 70% of their loans maturing in 3-15 years.

 

They've gone long on bonds as well with 54% maturing in 5-15 years.  For the stretch on the yield curve they're only earning 3.89% on their assets, slightly above average but not much.  Another data point is almost all of the bank's loans are multi-family residential and commercial non-owner occupied.  I wonder if these are shorter term loans amortized over a long period with a balloon?

 

The bank has extremely efficient operations, and I think the Astoria purchase is great for them.  This bank is known for their sizable dividend.  When you look at their dividend yield plus their book value growth they have nice return characteristics for such a large bank.

 

Thanks for posting.

 

Loans-to-deposits are very high and I would guess they have very poor liquidity. Could be bad news bears. I haven't looked at the financials though.

 

[IanBezek]

Anyone else been looking at this lately? Really surprised it has come down so far given the big gains in banks elsewhere since November. I get that investors are irritated about the failed merger, dividend cut, and still being stuck against the SIFI limit, but seems stock price has been more than adequately beaten up to simply for those reasons.

[villainx]

I have some, but it's kind of stuck in a no win situation.  Unless the cap is raised, even so, who knows if their growth can accelerate.