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
