Author Topic: NYB - New York Community Bancorp, Inc.  (Read 2594 times)

Junto

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NYB - New York Community Bancorp, Inc.
« on: August 18, 2011, 01:35:18 PM »
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:







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
« Last Edit: December 19, 2011, 10:04:37 PM by Junto »

Grenville

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Re: NYB - New York Community Bancorp, Inc.
« Reply #1 on: August 19, 2011, 09:43:45 AM »
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
« Last Edit: August 19, 2011, 09:46:04 AM by Grenville »

Grenville

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Re: NYB - New York Community Bancorp, Inc.
« Reply #2 on: August 19, 2011, 10:19:55 AM »
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

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Re: NYB - New York Community Bancorp, Inc.
« Reply #3 on: August 19, 2011, 12:45:47 PM »
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

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Re: NYB - New York Community Bancorp, Inc.
« Reply #4 on: August 19, 2011, 01:21:17 PM »
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

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Re: NYB - New York Community Bancorp, Inc.
« Reply #5 on: August 21, 2011, 01:10:55 PM »
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/Dís 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

« Last Edit: August 21, 2011, 01:13:24 PM by Junto »

Grenville

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Re: NYB - New York Community Bancorp, Inc.
« Reply #6 on: August 22, 2011, 08:13:44 AM »
Junto,

Thanks for the additional details and color!

Grenville

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Re: NYB - New York Community Bancorp, Inc.
« Reply #7 on: August 23, 2011, 07:48:51 AM »
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

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Re: NYB - New York Community Bancorp, Inc.
« Reply #8 on: August 23, 2011, 12:46:49 PM »
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

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Re: NYB - New York Community Bancorp, Inc.
« Reply #9 on: August 23, 2011, 01:10:40 PM »
Junto,

Thanks for the response! Very helpful.